Does Apple dare to bring the iPhone home after Google's lesson?

Google's failure to produce Motorola smartphones in the US became a lesson for Apple in the face of President Donald Trump's pressure to "bring the iPhone home".

In 2012, Google took a bold step by manufacturing its Moto X smartphone in the United States. Tens of thousands of devices are shipped out of its factory in Fort Worth, Texas, every day. Despite the challenges, Google remains confident in its decision.

“Most people think it can’t happen. Experts say the costs are too high, the U.S. has no manufacturing capacity, and the U.S. workforce is too inflexible,” Google said in a press release in September 2013.

After acquiring Motorola Mobility, Google used its technological prowess and vast resources to manufacture the Moto X in the US. However, the dream was shattered after only a year. Since then, no major company has wanted to manufacture smartphones in the US.

The Google story was largely forgotten 12 years later. Now, it’s a new lesson in the context of US President Donald Trump’s pressure on Apple and some other tech companies to manufacture devices in the US.

Looking for the Difference

Not only does it stand out because it's made in the US, the Moto X also attracts attention because it allows you to customize the device's appearance before purchase, with dozens of colors and back materials.

At the time, Motorola hoped its strategy would attract users compared to Apple or Samsung. Because it was made in the US, customers could receive their phones in four days and save on shipping costs.

According to Fortune , Motorola also emphasized “patriotism” when actively marketing the origin of its products. The factory inauguration ceremony was held with great fanfare and was attended by Rick Perry, the Governor of Texas at that time, along with billionaire Mark Cuban.

Roughly the size of eight football fields, the Fort Worth factory has been producing Motorola smartphones since 2013. Photo: Bloomberg .

The Moto X factory in Fort Worth is run by Flextronics. To save costs, workers here are only responsible for assembly, while components are imported from Asia.

Labor costs in the U.S. are of course higher than in China, about three times as much according to Motorola executives. However, the trade-off is acceptable when considering other advantages.

At the time, Motorola Mobility CEO Dennis Woodside said profits came from customized versions of the Moto X placed on the website, while the standard line was distributed to carriers to maintain demand and base production at the factory.

Cost-saving strategy

While Apple doesn’t sell custom iPhones like Motorola, it could face similar problems if it were to manufacture its smartphones in the U.S. The high costs are a reality, along with the limited number of domestic component suppliers.

Experts say that if Apple produces iPhones in the US, it will have to sell them at a very high price to make a profit. Analyst Dan Ives from Wedbush Securities estimates the figure could be as high as $3,500 , emphasizing that Apple producing iPhones domestically is a “fairy tale”.

To mitigate the tariff risk, Apple has accelerated the expansion of its production lines in India. However, comments from Mr. Trump on the Internet show that the president is not satisfied with the temporary solution of the Apple.

Moto X supports customizing the color and material of the back cover. Photo: CNET .

At the 2017 Fortune conference, Apple CEO Tim Cook praised Asian manufacturing compared to the US. According to Cook, China is no longer known for its cheap labor. Instead, the country's advantage comes from its larger pool of skilled workers, such as engineers with the ability to design and make precision molds.

Back in the Moto X saga, Flextronics had anticipated a shortage of skilled engineers in the U.S. from the start. To address this, the company recruited talent from countries like Hungary, Israel, Malaysia, Brazil, and China, willing to pay to bring them to Fort Worth just to get the factory up and running as quickly as possible.

“We had to bring in a very culturally diverse group,” said Mark Randall, Motorola's head of supply chain and operations at the time.

The Texas plant is the size of nearly eight football fields. Because it is located in a foreign trade zone, Motorola gets tax breaks on some components imported from Asia. However, the policy only applies if the company exports a certain amount of equipment abroad.

President Donald Trump and Apple CEO Tim Cook in 2019. Photo: New York Times .

Large amounts of production machinery are transported into the factory. Some operations, such as plastic parts assembly, are performed manually, while robots install components such as touchscreens. Once operations are running smoothly, process engineers continue to evaluate and optimize production time and efficiency.

As the first Motorola phone released after being acquired by Google, the Moto X attracted a lot of attention. The device costs $580 , has a rounded back, and has voice control. According to Randall, carriers are also excited about the Moto X because if it sells well, they can negotiate better contract prices with Apple in the future.

However, the technology community has mixed opinions about Moto X. While the ability to customize the design is highly appreciated, the product is criticized because the standard version has low memory (16 GB) and the screen quality is worse than the competition.

Consumers don't care about "Made in America"

At one point, the Fort Worth factory was producing 100,000 Moto X units a week. Initially, the overcapacity forced Motorola to temporarily withdraw its four-day delivery promise. However, production at the factory has declined over time.

According to Strategy Analytics , Motorola only sold 900,000 Moto X units globally in the first quarter of 2014, far behind Apple's 26 million iPhone 5s in the same period.

Five months after its launch, the Moto X was discounted to $400 . Nine months later, the factory had just 700 workers, less than one-fifth of its previous workforce.

Rick Perry, then-Governor of Texas, speaks at the opening of Motorola's factory in 2013. Photo: Bloomberg .

While the Moto X wasn’t a complete sales failure, it wasn’t a huge success either. According to Redhall, some executives cited limited marketing budgets as an excuse. Ultimately, they realized the biggest mistake was overemphasizing the product’s provenance when consumers barely cared.

“One of the lessons learned was that assembling smartphones in the US was not attractive to users,” said Mark Rose, Motorola’s senior director of product management at the time.

Due to poor demand, Motorola had to find ways to cut costs. Allowing users to customize colors and materials posed a challenge.

Compared to Apple, Android smartphone makers like Motorola face stiff competition, leading to low profit margins. Any additional costs, such as manufacturing in the US, can be financially damaging.

Lessons for Apple

Ultimately, Google's priorities led to the decision to sell Motorola Mobility to Lenovo for $2.9 billion . A few months later, Google announced it was closing its Fort Worth factory, moving production to China and Brazil.

Instead of competing with Apple, Lenovo's Motorola focuses on producing low-cost smartphones, targeting developing countries.

“We found the North American market very difficult,” Motorola President Rick Osterloh admitted to the WSJ after announcing the closure of the Fort Worth factory.

Selling Motorola also solves another problem for Google. Many Android makers believe the company bought Motorola to compete directly with them.

However, Google retained most of Motorola’s patents, giving the company an advantage against potential Android-related lawsuits. According to Fortune , this was the biggest “bargain” when the company bought Motorola instead of the brand reputation.

After all, Motorola's failure in the US is largely due to the poor sales of the Moto X, not entirely due to the country where the device is assembled.

Users buy iPhone 16 at Apple stores. Photo: Bloomberg .

“If the product had sold well from the start, the story would have been different,” said Gabe Madway, who used to work in Motorola's public relations department.

Randall also frankly admitted that the failure of the Moto X had “absolutely nothing to do” with US manufacturing and was not due to the iPhone, which was a better device with higher brand recognition.

Of course, much has changed in the 12 years since, including the widespread adoption of automation. But labor remains the biggest challenge, along with the limited number of component suppliers in the US.

Steve Mills, former chief information officer at Motorola Mobility, said companies would have a breather if Mr. Trump relaxed his stance. Instead of manufacturing entirely in the U.S., companies could avoid tariffs by only assembling finished products domestically, similar to Motorola’s strategy.

“The big question is what Trump means by 'Made in America,'” Mills added.

Another idea is that Apple could build a small-scale operation in the US to produce “high-end or limited-edition” iPhones, according to analyst Ross Rubin of Reticle Research . A high-end, $2,000 iPhone could satisfy both sides, without Apple having to move all of its production back home.

Source: https://znews.vn/bai-hoc-lon-cho-apple-post1568368.html