At Apple Inc. (NASDAQ:AAPL)‘s Worldwide Developers Conference, the company confirmed longstanding rumors about a new product. Later this year, Cupertino will release a radically redesigned version of its premium Mac Pro desktop computer, which currently starts in the low $2,000s. The high-end PC lacks a monitor, but is Apple Inc. (NASDAQ:AAPL)’s most powerful machine, although recent versions were less than cutting-edge.
The new Mac Pro is anything but behind the curve. It’s a beautiful machine with advanced components, but it also includes a special feature that Apple hasn’t used in a long time: it will be assembled in the U.S. And Apple Inc. (NASDAQ:AAPL) is not the only company taking an interest in American manufacturing. Google Inc (NASDAQ:GOOG)‘s Motorola Mobility subsidiary will be assembling the new flagship Moto X phone in Texas. And Google Inc (NASDAQ:GOOG) already built its failed Nexus Q living room box in America, so the trend isn’t new.
So what does this trend mean for traders? Does being made in the USA equal higher profits, or lower margins?
The bad
There’s one serious hangup with building your products in the United States: cost. Foxconn, a major electronics manufacturer that builds the iPhone, pays its workers below $5 an hour — and that’s overtime pay. The standard per-hour pay is $2.50. A comparable worker in the United States would make five to eight times that amount, so you can see why companies like Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) like to make things overseas.
But cost isn’t the only thing; in fact, it might not be the most important factor. Remember that, while Foxconn workers assemble the devices, they do it using components manufactured mostly in China. These parts are built in huge factory complexes where hundreds of thousands of laborers live and work. You can move the assembly to the United States, but the rest of the supply chain will still be in China.
There’s a legendary story about how Steve Jobs decided, weeks before the release of the iPhone, that it needed a glass screen instead of a plastic one. His executives could not have turned to America to build 10,000 redesigned phones a day in less than a month. Only China has the workforce, supply chain, and labor laws to facilitate that kind of grueling schedule.
The good
But there are also plenty of positives in building products in the United States. Apple Inc. (NASDAQ:AAPL) hinted for months before the unveiling of the new Mac Pro that the company was going to be building something in America. And Google Inc (NASDAQ:GOOG) is hyping up a storm about the Moto X being the “only smartphone made in the United States.” It’s a publicity coup to build your product in the United States these days, especially if your product is electronic. Such a pedigree is usually reserved for high-end, luxury devices that are out of the reach of the average consumer.
And despite the supply chain and manufacturing disadvantages, there are some logistical pluses to American assembly. Although the Nexus Q failed (in part due to its high price), Google was excited about the newfound proximity of its engineering and manufacturing departments. Broadly, it’s easier to ensure quality and consistency when your factory is on the same continent. And it’s much easier to move quickly to make changes or correct issues.
The bottom line
For Apple, I think building the Mac Pro in the United States is a really smart move. It’s a premium product at a premium price, so consumers won’t be put off by a “Made in the USA” surcharge. Heck, they’ll probably like it — there’s a cache associated with owning American-made products these days, and for such a luxury device, I think the pedigree will only add to the appeal.
In addition, the Mac Pro has not sold particularly well in the past few years, and the move is part of a larger refresh that I think has a shot at revitalizing the computer line. In short, I think Apple Inc. (NASDAQ:AAPL)’s decision bodes well for its profit margins in the medium to long-term; once they actually start selling the thing.
For Google Inc (NASDAQ:GOOG), the future is less clear. The company has promised the Moto X at an uncommonly low price — a promise I look forward to seeing it keep. A low-cost American-made phone is one thing, but a low-cost American-made premium phone is quite another indeed. I will be interested to see the quality of the Moto X, and the quantity. And if Google Inc (NASDAQ:GOOG)’s Motorola acquisition and phone manufacturing business is key to your investment, I would advise waiting on the release of this enigmatic device. If Google can pull it off, I think it will be huge — but I’m curious about what corners they may cut.
The article The Significance of “Made in the USA” originally appeared on Fool.com and is written by Steven Yenzer.
Steven Yenzer owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Steven is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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