The truth about iPhones

So it has been revealed in today’s Straits Times here that Apple accounts for 80% of data transmitted to and from non-computer devices in Singapore. To me, that means that Singaporeans are a rich bunch – or at least very willing and able to spend – given that iPhones and iPads don’t come cheap.

I wonder though, if all the iPhone fanatics out there realise the supremely huge profit margin that Apple has on the product. The total manufacturing cost of an iPhone is only US$179, which is approximately only SG$222.

I’m not sure either if iPhone users are aware of the labour rights issues related to the assembly of iPhones, which takes place in China under the company Foxconn. Workers in Foxconn have committed suicides due to low wages and poor labour conditions, while workers in Wintek, which makes Apple’s touch screens, have suffered from chemical poisoning. 

It may not be fair to blame Apple completely for the misdeeds of its subcontractors, but Apple has done little to address the issues or apply pressure on its subcontractors despite the many controversies that have arisen, particularly in the case of Foxconn. One must also always ask whether subcontractors use low-quality materials or pay low wages due to pressure by the main company to keep costs down to maximise profits – it’s a question that applies to the manufacture of all goods.

However, a research paper has pointed out that raising wages has little impact on Apple’s profits for the iPhone. A 10 times increase in labour costs will only increase the assembly costs of an iPhone to US$68 and push total manufacturing costs to about US$240 – only US$61 for a 10 times increase, which makes the current labour costs a mere pittance at US$6.77 per iPhone.

The pitiful cost of labour in assembling an iPhone aside, the paper used the above argument to suggest the viability of shifting iPhone assembly to the US. The US’ enormous trade deficit with China is not helped by the assembly of iPhones in China, the reason being that China only contributes 3.6% of the total manufacturing costs of the iPhone*, yet the iPhone alone accounted for US$1.9 billion in trade deficit, or 0.8% of the US’ total trade deficit with China. The paper suggests that Apple could therefore shift the iPhone assembly to the US with only US$61 increase in manufacturing costs (assuming US workers cost 10 times more than Chinese workers), reducing the US’ trade deficit with China and providing jobs for the flagging US manufacturing sector at the same time.

 

*: The manufacture of iPhones involves 9 companies located in China, Germany, Japan, Korea and the US, with the main producers and suppliers of iPhone parts and components mostly located outside of China and China mainly handling the assembly, as previously mentioned.