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What Will AAPL's Profit Margins Be? Just Ask Foxconn... And Discover A Stunning Development In China-US Wage Parity

Tyler Durden's picture




 

In just over an hour Apple will report earnings which are expected to be a sole silver lining among the otherwise dreary retail landscape of the fourth quarter. However, those curious for an advance glimpse of what AAPL's margins may be are advised to look no further than its chief supplier - Taiwanese mega contract manufacturer FoxConn, with over 1.2 million employees on the mainland. The reason Foxconn may be of interest is that as Reuters reports, as a result of soaring wages on the mainland, and in its ongoing strategy to keep worker compensation as razor thin as possible, the fabricator is now actively looking to expand outside of China. Among the places considered? Indonesia of course. And, drumroll, the United States! In other words, from the perspective of Foxconn, US labor now has greater wage competitiveness than China.

From Reuters:

Beset by rising costs and labour unrest in China, Chairman Terry Gou told employees on Sunday that Foxconn is considering diversifying away from its manufacturing heartland. The world's largest contract maker of electronic goods has little choice if it's to protect margins and stay ahead of peers who have adapted the Foxconn playbook into their own success stories.

 

"The U.S. is a must-go market," said Gou, speaking at the group's annual party on Sunday to mark the end of the Chinese year. Many customers and partners have asked Foxconn to open shop in the U.S., Gou said, with an eye on advanced manufacturing much closer to their home base.

 

At the same time, Indonesia will be a top priority this year as a potential production base with attractive costs and skills. That would tie in with Foxconn's deal to design and market phones in the country with BlackBerry Ltd as the Canadian company seeks to reverse its decline in the smartphone business.

 

"Foxconn has no choice but to do it," said Danny Lee, a fund manager of Mega Financial Holding's fund unit. "China is no longer a manufacturing hub for companies worldwide, especially so for the PC industry."

 

In the U.S., Foxconn businesses like flagship unit Hon Hai Precision Industry Co Ltd, Foxconn Technology Co Ltd and FIH Mobile could take advantage of geographical proximity to open up new deals with partners like Apple as they develop new gadgets.

 

"I think they're looking more closely at the U.S. in order to move closer to some of their biggest clients. Obama is also really pushing to return manufacturing to America and boost employment opportunities," said Kuo Ming-Chi, an analyst at Taipei-based KGI Securities.

This is indeed a stunning development: recall that we asked, rhetorically, back in May 2011 "With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?" Or some time in early 2016. Well, nearly 3 years later, we get the first proof that wage parity may indeed be coming, and much faster than previously expected.

Is the Fed to thank for this imminent manufacturing renaissance? Recall what we said in 2011:

the more the Fed exports inflation, paradoxically the faster the US manufacturing job base would see a long overdue renaissance. Which certainly means that the Fed will never stop with its monetary easing stimulus until such time as labor costs in the two countries, on whatever subjective metric is dominant, finally hit parity. The only question, as noted above, is what will China do in the interim as it realizes the Fed has put it in check - will China focus on developing its middle class, with an outcome being the mirror image of the current Nash equilibrium, in which the Chinese middle class would buy from the US, or will China defect before the "export country" to "consumer class" transition is complete and everything falls apart.

It is quite possible that while China was napping, the Fed's exporting of wage inflation just succeeded to get the US to relative wage parity with China - something most considered impossible as recently as 5 years ago. However, if indeed true, this means that the Chinese response will only have more urgency now that it suddenly may find itself competing with workers from places such as the US.

In the meantime, if Foxconn's margins have indeed collapsed as the above would seem to suggest, watch as they pass through these rising labor costs to its marquee clients. Like Apple. For the answer if this indeed happened, we will know in just about an hour.

 

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Mon, 01/27/2014 - 16:27 | 4372335 spastic_colon
spastic_colon's picture

just like everyone else....AAPL biggest driver of EPS will be a reduced tax rate

Mon, 01/27/2014 - 16:32 | 4372354 SafelyGraze
SafelyGraze's picture

set up the nets!

Mon, 01/27/2014 - 16:40 | 4372363 hedgeless_horseman
hedgeless_horseman's picture

 

 

...the fabricator is now actively looking to
expand outside of China. Among the places considered? Indonesia of
course. And, drumroll, the United States!  

Farouk was ahead of the curve when he moved his manufacturing back to the USA...

So he could hire hispanic and African Americans to work in his factories...

 

Asked to explain what he meant about not hiring many whites, he said
they want special treatment. “A majority of the people are going to be
Hispanic and African-American. You don't find white people who are
willing to work in factories. And our history proves, you know, lots of
time when they, you know, the white people come to work in a factory
they either want to be supervisors or they want to be, you know, paid
more than the average person. And unfortunately they exit.”

 

http://www.kvue.com/news/Shami-Whites-dont-want-to-work-in-factories-842...

Mon, 01/27/2014 - 16:41 | 4372376 SafelyGraze
SafelyGraze's picture

HH -

here's a picture of a billboard that says "hungry fed"

apt

could you post it?

http://postimg.org/image/w7zr8l60z/


Mon, 01/27/2014 - 16:43 | 4372392 Stackers
Stackers's picture

It's time we brought the New Guinea cannibal hill tribes into the future with 50cent per hour 15 hour work days and black lung smog !

Mon, 01/27/2014 - 16:50 | 4372400 NoDebt
NoDebt's picture

You guys are getting all excited over nothing.  Just because FauxCon is thinking about opening a factory here (which I doubt is a serious consideration- sounds like more PR stunt than the Amazon flying drones) doesn't mean they're going to hire American workers.  It'll be a floor full of robots with 50 techs running around maintaining them.

The days of mass employment in the US are long, LONG gone.  (Except in government make-work agencies)

Mon, 01/27/2014 - 18:45 | 4372827 mumbo_jumbo
mumbo_jumbo's picture

many of you have this illusion that manufacturing is all about some assembly line where robots put things together, well there's much more to it than that. those "things" that the robot assemble have to come from somewhere and many of those things are molded, casted, formed or fabricated.

there is much more to USA manufacturing than assembling widgets to make cars, my industry (injection mold tooling) has seen a huge increase in work, 2013 was my best year since 1997...just NOT accounting for inflation doing that I'm still about 35% below my best year BUT at least I've stopped digging the hole.

my .02

Mon, 01/27/2014 - 19:29 | 4372958 Husk-Erzulie
Husk-Erzulie's picture

Wackenhut anyone?  They will build it in a prison.  By the time the iflex pad is introduced it will be produced in the US by political prisoners working to pay off the cost of their arrest and interogation.

Mon, 01/27/2014 - 16:41 | 4372382 CitizenPete
CitizenPete's picture

Fucking whites.

 

 

Zero Hedge is intended for Mature Audiences.

Mon, 01/27/2014 - 17:01 | 4372469 Bangin7GramRocks
Bangin7GramRocks's picture

I hear you brother! I remember when the country was full of natives and then these filthy whites came and ruined everything! 

Mon, 01/27/2014 - 18:35 | 4372794 The_Dude
The_Dude's picture

If no one else will say it.....total f'ing douchebag

Mon, 01/27/2014 - 19:09 | 4372882 The_Dude
The_Dude's picture

@Bangin....

If possesson is 99%, then you get what you get.

If you are playing the game of 'who was here first' then maybe I will update your dataset.....

It has recently been published that there is genetic evidence that early Europeans (northern Eurasian tribes) were the earliest to venture to and settle the Americas, ultimately becoming the 'Native Americans' after a few thousand years and some rounds of additional Asian immigration. If true...and it looks like it may be....then all I can say is...."Get the Fuck off my lawn!!!"  :o)

http://www.tgdaily.com/general-sciences-features/67817-native-americans-...

http://www.genetics.org/content/192/3/1065

"The only plausible explanation we can see for our signal of
admixture into the French is that an ancient northern Eurasian
population contributed genetic material to both the ancestral
population of the Americas and the ancestral population of
northern Europe. This was quite surprising to us, and in the
remainder of the article this is the effect we discuss."

Mon, 01/27/2014 - 17:11 | 4372504 SheepDog-One
SheepDog-One's picture

'Special treatment' of course meaning 'rejecting corporate slavery'.

Fuck it, I'd rather play pool all nite than be some assembly line bitch for peanuts.

Mon, 01/27/2014 - 19:03 | 4372878 noless
noless's picture

I swear man, work is fucking over rated.

I don't know how i got conned into this bullshit.

Mon, 01/27/2014 - 17:12 | 4372510 ReactionToClose...
ReactionToClosedMinds's picture

not that anyone cares ..... originating from the Midwest ..... most everyone worked in a factory at some point ...... learned an awful lot there ..... including employee sabotage of products in the more 'energized' union shops..... keep your head low, listen to the foreman but prepared to hear a 'countermand' from the shop steward .....

the smaller the factory (worked for a great sub-parts metal stamper - great owner - engineer who knew his product inside and out - could work the machines better than us) ...the more efficient & 'real world' it was versus the labor pyrotechnics inevitable at the larger places .....

Mon, 01/27/2014 - 16:36 | 4372365 max2205
max2205's picture

And the Fed wins by debasing the working class.....well played

 

Let the new cycle begin!

Mon, 01/27/2014 - 16:54 | 4372433 Occams_Chainsaw
Occams_Chainsaw's picture

Damn Mongorians.....

Mon, 01/27/2014 - 16:29 | 4372337 youngman
youngman's picture

I doubt if Americans will like to live on a campus...but if they do..make sure they are high enough to jump off of.....splatter is the word

Mon, 01/27/2014 - 17:05 | 4372478 negative rates
negative rates's picture

That's why we have bridges like the tallahatchie.

Mon, 01/27/2014 - 16:29 | 4372342 TeamDepends
TeamDepends's picture

Well, as per the other thread, Americans will now apparently work around the clock.

Mon, 01/27/2014 - 16:33 | 4372353 Winston Churchill
Winston Churchill's picture

42 hours per week is around the clock ?

I did that in one weekend, back in the day.

The difference between being an employee ,and self employed.

Mon, 01/27/2014 - 16:29 | 4372345 Cannon Fodder
Cannon Fodder's picture

Wonder if this is related to immigration reform? Import millions of aliens and let them work for reduced wages at these factories.... it's all a race to the bottom...

Mon, 01/27/2014 - 16:31 | 4372349 buzzsaw99
buzzsaw99's picture

step away from the hexane fumes dude

Mon, 01/27/2014 - 16:32 | 4372351 nightshiftsucks
nightshiftsucks's picture

I know someone working for a startup,it cost them single digits to make it in China and ship it over here where they will sell it for triple digits.The ones that they make in the US are a lot more expensive.

Mon, 01/27/2014 - 16:34 | 4372355 Make_Mine_A_Double
Make_Mine_A_Double's picture

Foxconn concentration camp....errr.....dormatories will have to have reinforced suicide...errr....safety nets to catch the lardassed 250 pound children....errr....young adults when they swan dive off the roofs.

Yeah, maybe some wage parity. But productivity? Good luck. You couldn't get a days work out of most young Americans even with German shepards and cattle prods.

Mon, 01/27/2014 - 16:37 | 4372366 SilverIsKing
SilverIsKing's picture

I beg to differ.  You can get a days work out of most young Americans without using force although productivity is extremely low due to constant Instagram, Facebook, and Twitter breaks.

Mon, 01/27/2014 - 16:39 | 4372370 I am Jobe
I am Jobe's picture

Good luck with that. 

Mon, 01/27/2014 - 16:42 | 4372380 insanelysane
insanelysane's picture

The safety nets will drop the employees right into their work station.

Mon, 01/27/2014 - 16:52 | 4372424 I am Jobe
I am Jobe's picture

will SuperGulp and Donuts be served in the production line? Will Facebook, Instagram be available? 

Mon, 01/27/2014 - 19:48 | 4373014 BidnessMan
BidnessMan's picture

Easy enough to set up short range cell phone jammers so the "Youts" are not constantly texting. A big old metal building can make a nice Faraday cage.

Mon, 01/27/2014 - 21:54 | 4373500 LocalBoy
LocalBoy's picture

Its far easier to lead than drive with force and coercion. Pride of achievement is the best motivator ever.

Mon, 01/27/2014 - 21:52 | 4373491 LocalBoy
LocalBoy's picture

I get it everyday, you must lack in leadership skills.
No phones, no BS.....Problem we have is the conglomerates taking over supply chains, our legislature and regulatory capture.

American labor is fine, when they are given the chance with good leadership. That is where we lag, good leadership. 

Mon, 01/27/2014 - 16:34 | 4372362 I am Jobe
I am Jobe's picture

More Amerikans will be parading around with their IPHONES and ignoring the issues as usual. 

Mon, 01/27/2014 - 17:03 | 4372456 SheepDog-One
SheepDog-One's picture

iPhones aren't even considered 'cool' anymore....it's what your dad uses. All the cool kids have Droids now.

Mon, 01/27/2014 - 16:37 | 4372367 I am Jobe
I am Jobe's picture

Foxconn in Talks With U.S. States to Build Factories

http://www.bloomberg.com/news/2014-01-27/foxconn-in-talks-with-u-s-state...

Mon, 01/27/2014 - 16:54 | 4372431 Blues Traveler
Blues Traveler's picture

Just in time for tuesday night's state of the insane address

Mon, 01/27/2014 - 16:41 | 4372377 Bangin7GramRocks
Bangin7GramRocks's picture

Bullshit! American sausage fingers are too clumsy for this kind of work.

Mon, 01/27/2014 - 16:46 | 4372403 I am Jobe
I am Jobe's picture

Holding 64oz SuperGulp Hands are meant to work , and use the phones . You mean to tell me this is not the case? 

Mon, 01/27/2014 - 16:45 | 4372393 KidHorn
KidHorn's picture

I'll believe it when I see it. FoxConn is more likley trying to placate american politicians.

Mon, 01/27/2014 - 17:06 | 4372397 tickhound
tickhound's picture

This isn't about wage equality between nations. Any Foxconn move into the US is just an introduction for the next generation in automated facilities and the continued reduction in the COSTS and RISKS of human labor.

Even a further fall in us wages and lower product delivery costs would do little for a multinational looking to offset the health cost, liabilities, pensions, regulations, and unions associated with US employment.

This is all foreplay for the automated "smart" facility coming to a paradigm shift near you.

Mon, 01/27/2014 - 17:23 | 4372552 arby63
arby63's picture

I believe you are correct; however, does anyone wonder how long it can go on? I mean, if no one can buy the next i-gadget then what's the point of robotic manufacturing?

If we are all sitting home soon in the name of efficiency then spare tires for bicycles will be more valuable than an i-gadget. No?

Mon, 01/27/2014 - 18:50 | 4372825 tickhound
tickhound's picture

Easier to begin the gigantic thought experiment by asking yourself the question that technology has finally allowed humanity to revisit... Why do we need money?

Mon, 01/27/2014 - 17:44 | 4372626 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Right I could see the factories being more robotic if they were here in the US, and I don't see it as a 100% bad thing. I couldn't see the point of having someone sit there and glue little pads onto the bottoms of mice when a robot could do it at least 20x faster. 

I would guess that, either as a result of TPP or some other political favor, that any factor stateside would be exempted from usual Obamacare coverage and de facto not enforcing much in the way of safety standards. And local govts would likely wave business/RE taxes for any factory added in their area.

Mon, 01/27/2014 - 21:43 | 4373449 LocalBoy
LocalBoy's picture

Cheap is not always best, bottom lines are made of more than hourly wages and healthcare cost. It boils down to productivity and ability to overcome obstacles. American labor thinks on their feet, adapts to change and requires far less supervision. On top that American labor is productive.

I look around my area and see the feeder bowls exporting, transmissions exporting, medical respiratory equipment exports. I see the prosthetics capital of the world, bio med and pharma research. Honda and Toyota with brand new plants and no unions. I see production everywhere.

Its not labor cost the drag the US, its the fucked up, lazy ass arrogant middle management and upper management.
Where you see success, you see humility. 

American labor is not the problem, its the amount of weight they are required to carry.

 

Mon, 01/27/2014 - 16:46 | 4372404 Yen Cross
Yen Cross's picture

  "

What Will AAPL's Profit Margins Be? Just Ask Foxconn... And Discover A Stunning Development In China-US Wage Parity"... Just ask Carl Icon<
Mon, 01/27/2014 - 16:51 | 4372419 I am Jobe
I am Jobe's picture

How many Sheeples know of  FOXCONN?

Mon, 01/27/2014 - 16:56 | 4372443 rtalcott
rtalcott's picture

The answer is robots.....

Mon, 01/27/2014 - 18:16 | 4372736 SweetDoug
SweetDoug's picture

'

'

Ya beats me to it!

 

Bullshit! It is ROBOTS.

 

I think perversely enough, it will not be the Americans that revolt against the idea of jobs being taken by robots, but the Chinese!

 

This is because we've got all our social/welfare programs that will allow nobody to give a shit about jobs NOT being given to people. Nobody will notice.

 

Over in China? Their social safety net? Not so much. You don't work, you make no money and you starve to death. That brings social change to the forefront.

 

I think Foxcon is bailing on China for that very reason.

http://www.globaltimes.cn/NEWS/tabid/99/ID/684838/Foxconn-intends-to-pro...

 

•J•
V-V

 

Mon, 01/27/2014 - 17:08 | 4372444 SheepDog-One
SheepDog-One's picture

'Apples earning are expected to be a silver lining'....why? Because of 'expected' big sales of their sucky low battery life iCrap? The 'experts' must have advanced knowlege of extraordinary accountng gimmicks this earnings report.

Mon, 01/27/2014 - 16:57 | 4372448 Spastica Rex
Spastica Rex's picture

I've always wanted to live in a dorm and assemble iJunk at 3:00 in the morning. Looks like my dream might soon come true.

Mon, 01/27/2014 - 16:58 | 4372449 proLiberty
proLiberty's picture

The very mechanism of the Fed's inflation of the dollar by dilution also has the effect of making anything that is quoted in dollars less expensive to those using other currencies. This is especially true when the Fed uses dollars created out of thin air to suppress the dollar price of gold. We will wake up one morning to find that China holds a surprising amount of gold and we hold a surprisingly small amount of gold. Senator Schumer (Demagogue, NY) will demand an investigation into how China bought the gold for a song. That is the same senator who thinks money comes from a printing press.

Mon, 01/27/2014 - 17:02 | 4372464 SheepDog-One
SheepDog-One's picture

Id be surprised if there's ANY gold left in Ft. Knox or The Morgue's vaults myself!

Mon, 01/27/2014 - 17:05 | 4372483 Yen Cross
Yen Cross's picture

  I can't stand CNBS, This 'Kelly Evans' is going to get fired if she keeps questioning the establishment. Shes' got a great future in private equities.

Mon, 01/27/2014 - 17:14 | 4372520 SheepDog-One
SheepDog-One's picture

Another 'Wall St chosen stock' earnings, that's all.....one day Apple will go the way of BlackBerry.

Mon, 01/27/2014 - 17:19 | 4372531 MarkD
MarkD's picture

Foxconn can use the empty Intel factory

 

Mon, 01/27/2014 - 17:33 | 4372588 djsmps
djsmps's picture

There's a big empty Boeing factory where I live. The only improvements needed would be the suicide nets.

Mon, 01/27/2014 - 17:54 | 4372653 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

I'm sure with Obamacare they won't mind if there are some suicides.

Mon, 01/27/2014 - 19:45 | 4372996 BidnessMan
BidnessMan's picture

Lots of vacant textile and carpet mills in Georgia, South Carolina, and North Carolina along the I-85 corridor, and lots of former textile workers who would be happy to work hard for an honest wage. And local government officials who would welcome new employers.

Mon, 01/27/2014 - 17:39 | 4372608 NoWayJose
NoWayJose's picture

US wages may be competitive if you only have to pay part time labor...

Remember too that the yuan has been on a multi-year trend against the US dollar, so that tipping point may be near as well.

And finally, don't be surprised if the actual location(s) picked end up offering big tax breaks to any factories or manufacturing that re-locates.

Mon, 01/27/2014 - 17:45 | 4372631 SheepDog-One
SheepDog-One's picture

AH....so Apple dumping -5% on shit earnings...guess the silver lining was just crappy gold painted case, like iPhone 5.

Mon, 01/27/2014 - 18:28 | 4372763 esum
esum's picture

alll about POLITICS

just like japan mfg in ussa.... 

besides the ussa facility will be staffed with part-time illegals... 

 

 

 

Mon, 01/27/2014 - 18:31 | 4372775 Catullus
Catullus's picture

Wage parity. If you count how much you have to pay off the local Chinese princeling to do business there.

Mon, 01/27/2014 - 19:56 | 4373034 lunaticfringe
lunaticfringe's picture

With aapl sales hugely disappointing and the stock down over 40 bucks after hrs., maybe they'll need to put this whole idea on hold. For like 10 years.

Total bullshit. Top to bottom.

Mon, 01/27/2014 - 20:15 | 4373089 straightershooter
straightershooter's picture

ATTENTION! ATTENTION!

 

Zero hedge got it all wrong.

 

No workers, repeat, no workers will be hired for the " ADVANCED" factory here in the USA--Only advanced Robotics will be used and deployed 24/7 without any concern of "OBAMAsurance", union, labor regulations, whatever....

 

And, no, no, and no, no small gadgets, phones, etc, will be made in the USA--

 

Only bulky servers/ 70inch TV, etc, will be made in the USA

 

Who do you think Terry Guo was/is? Now, go ponder your head against that_______

Mon, 01/27/2014 - 20:35 | 4373164 koan
koan's picture

P { margin-bottom: 0.08in; }

Irrelevant, robots will be doing all this work in 10 years.

Mon, 01/27/2014 - 21:05 | 4373261 rgetty
rgetty's picture

So that means the will move manufacturing to the US and bring in thousand of Chinese to do the work. Chinese companies are famous for that.

Tue, 01/28/2014 - 02:07 | 4374128 ThirdCoastSurfer
ThirdCoastSurfer's picture

One of these days I'm goning to follow the posting of Zero Hedge as in the three years or so I've been following this site, I've never seen it miss a pre-earnings prognostication.

Do NOT follow this link or you will be banned from the site!