BUSINESS

For NYT, Apple Making Less Profit Is Not Even an Option

February 15, 2012   ·   0 Comments

Source: FAIR

Apple Profits

By Peter Hart:

In the Times Sunday Review Jesse Kornbluth writes (2/12/12):

There are things that do not happen in the real world. Noam Chomsky becoming president. Unflattering photos of Jennifer Aniston. Apple doubling the price of iPhones so its Chinese assemblers can work a 40-hour week.

OK, I know he’s being cheeky (Chomsky hasn’t declared as a presidential candidate yet), but there is still something that should be said about this idea that Apple products simply have to be manufactured in sweatshops.

Last week, the Times tech writer David Pogue (2/9/12) made a similarly flawed argument:

Bringing workplace standards and pay in Chinese factories up to American levels would, of course, raise the price of our electronics. How much is hard to say, but a financial analyst for an outsourcing company figures a $200 iPhone might cost $350 if it were built here.

Pogue added:

The issue is complicated. It’s upsetting. We, the consumers, want our shiny electronics. We want them cheap, yet we want them built by well-paid, healthy workers. But apparently, we can’t have both.

Luckily, Ryan Chittum at CJR (2/10/12) looked at the math here, and he makes a pretty convincing case that Pogue’s got it wrong. Even if you accept–which you shouldn’t–Pogue’s $150 price differential, there are plenty of questions to raise:

For one, iPhones have super-high profit margins. A teardown analysis by IHS iSuppli pegs the cost of that $649 iPhone at $188, giving Apple stunning gross margins of more than 71 percent. Making the phone here would presumably force Apple to transfer much of the increased cost to shareholders, rather than boosting prices for consumers. Put another way, even accepting this $150 figure, Apple would still have gross margins on the iPhone of about 50 percent without raising the price one penny. Which would reverse somewhat the flow of money from the middle and working classes to the capital holders concentrated in the top 1 percent.

Chittum adds, more directly, that Pogue needn’t rely on “a financial analyst for an outsourcing company.” He could, as his Chittum noted,  read his own paper, which reported it this way:

However, various academics and manufacturing analysts estimate that because labor is such a small part of technology manufacturing, paying American wages would add up to $65 to each iPhone’s expense.

In other words, Pogue’s “upsetting” dilemma doesn’t really have anything to do with the impossibility of having the best of both worlds: cheap gadgets and well-paid workers. Consumers could almost certainly have something close to both–but it would mean making Apple a very profitable company instead of a massively profitable one.

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