dylan lewis: evan, i've seen estimates thatroughly 90% of the iphones come from outside the u.s., you think that's about right?evan niu: yeah it sounds about right. i know it's a lot, very little of it comes from insidethe u.s. these days. they have other products that are made here like the mac pro, but asfar as the iphone goes it's mostly abroad yeah.lewis: i don't know how much that really is
apple stock price before split, different than the component breakdown inthe past, maybe in the early '90s, mid '90s for standard consumer tech stuff, but oneof the major changes that apple underwent really with tim cook, was this idea of changingfrom having their own in-house manufacturing, their own in-house warehouses company owned,to moving to this contract manufacturing type
relationship.niu: yeah they did that i think in the late '90s or so. they used to make macs in theu.s. in california. they just realized that it was way too expensive in-house. a lot ofit is also the engineering and manufacturing quality you can get now. because of coursea lot of people criticize that they won't bring those jobs back in the u.s. but apple'sdefense nowadays it's not just about low cost labor it's also about, you don't have as manymid-level manufacturing engineers available in the u.s. anymore, just because as an economywe don't have as many of those types of jobs. that's not the type of education that we focuson anymore and there's a ton of that over there.including the lower cost labor, they have
more people that in are within the specificskill sets that they need to ramp up the manufacturing. i think a long time ago they said you couldfit every single manufacturing engineer within, they would need a baseball stadium. in thecountry, that's just how many there are now. over in china, foxconn can get hundreds ofthousands of engineers within a couple hours if they need them to make some change, ortweak some processor. there's a lot of sides to the story why they do it like that.lewis: this pivot, this decision by the business to go to this contract manufacturing relationship.it was really something that tim cook pushed aggressively for all the praise that stevejobs gets as this design, branding, user experience mastermind. this is where tim cook’s expertisereally is, in operational efficiency and just
running a business extremely well from a supplychain’s point of view. he has really pushed the business to where they are now, wherethey rely heavily on foxconn and pegatron to name two, as these contract manufactures.listeners, just so you have an idea if you don't know what this term means. basically,apple doesn't own any of the facilities where iphones are being assembled. instead--niu: well they own, let me just add in that they own a bunch of the manufacturing toolingand the equipment. a lot of their capital expenditures these days are they buy the actualinfrastructure and the gear, and then they put that inside of the facilities that theydon't own. they kind of own a lot of the stuff and foxconn owns the factory and then theyhire the people, and then they operate that
stuff. i mean their capex is like 10 millionyuan, which is insane. majority of that goes to this product tooling that sits in asiainside a factory facility. lewis: yeah. i'm glad you hopped in and clarifiedthere. but, largely they're paying these manufactures to put together devices and then ship themover, right? niu: right.lewis: foxconn is the name that you will hear the most, and when you hear that name youoften think of foxconn city. which is the company’s largest manufacturing plant andthat's in shenzhen, china. so chances are if you're holding an iphone or listening tothis episode on an iphone, it was put together in china. on that one campus alone, and wheni say campus, i mean that that's kind of the
vibe that you get looking around. if you eversee pictures of this setup, it's incredible. they have hundreds of thousands of employeesworking there. it's over a square mile and they have dorms for employees, its own shoppingcenter, i think they have their own cable network there. the executives there are likingit to this college experience, i think it's kind of a stretch. you have people working12 hour days, 6 days a week, putting together iphones. that one foxconn city location isjust one of the 12 that the company has in china. actually, folks following tech mighthave heard earlier this week, foxconn announced it automated 60,000 jobs in one of its factories.going back to that idea of providing some of the tooling, i'm sure apple had somethingto do with that.
niu: yeah, i wonder if they helped fund someof that affair. if they're going to be using those robots for primarily iphone production,it would make sense that apple helped them pay for some of that.lewis: yeah. we don't have firm details on that, but it wouldn't be a stretch by anymeans. niu: right.lewis: more recently, apple added pegatron. that's a name i mentioned earlier, as anothercontract manufacturer. i think this was maybe 2012 or so, 2013. i think there were two bigreasons for this. one of them was diversification, to downplay the risk of relying solely onone contract manufacturer so heavily, like foxconn. i think maybe another was in a responseto the company’s increasingly complex fragmented
product offering. they wanted to have thatsplit among a couple different suppliers, just because of some of the specializationrequired to produce the different sizes, models, and form factors. if you're listening to thisshow on an iphone, chances are it started out in a foxconn or pegatron factory, mostlikely in china. i can think of a testament to the growth and diversification strategyamong their contract manufacturers. recently, they've added another taiwan-based companyto this list, wistron. just another think to keep an eye out for.
