A question about the Trillion Dollar Apple that I don't know how to answer...
Apple hit the arbitrary but emotionally significant milestone of a $1 Trillion market capitalization value. For those of you not versed in stock market terminology this means that if you wanted to own Apple outright you would have to come up with $1 Trillion to buy out the current shareholders. Let's just say that, unless you were a sovereign country of significant size this is impossible. And even then...
I think this is a remarkable achievement. While there is a bit of financial engineering at play here (e.g. stock buybacks & Fed QE program) that does not detract from the fact that Apple is one of the great corporations in the history of the world. I believe that the company is to be admired, especially when you consider that they were close to bankruptcy a mere 20 years ago.
I am not an Apple hater. Nor am I particularly fussed about individual companies getting to a gargantuan size. However, an article in the NY Times got me thinking.
This article explores the question on whether the concentration of economic power into a few "superstar firms" is negatively affecting wage growth for workers.
While I am sure there is correlation here, I am skeptical as to causation. All the same I started to ask myself the following question:
What if Apple manufactured all those iPhones in the US?
The implication in this question is that there would be more manufacturing jobs as a result. I don't know how to answer this broad question but let's drill down a bit.
According to their most recent quarterly filing Apple had net income of $11.5 Billion in Q3 on sales of $53.5 Billion. 11 Billion dollars of profit! In a single quarter! These are phenomenal numbers and goes a long way to justify the current stock price (as opposed to TSLA, but that is a story for another time). In addition the company has almost $80 Billion in cash or short term marketable securities on hand.
Apple has sold over 1 Billion iPhones in the ten years that it has been around. That is a lot of manufactured hardware. Interestingly, for such a large hardware business, Apple does not own the plants that manufacture these devices. They outsource this to Foxconn which is based in China. This leads me to the following series of questions around building these phones in the US rather than China:
- How much more would it cost, per device, to manufacture in the US?
- Assuming that they could not raise the price of the device, how much less of a profit would that leave Apple?
- How many jobs would be created? At what pay level?
I don't know how to answer these questions.
Let me say upfront that I don't think any company is obligated to follow a path that, all other things considered, causes then to make less of a profit than they could otherwise. Any company's prime directive is to make money. Full stop.
On the other hand, would Apple be any less of a great company if supported a few thousand manufacturing jobs in the US and it made $8 Billion in profit last quarter instead of 11 Billion? Or even $5 Billion? The stock price would not be at current levels, of course, but would everyone other than the shareholders benefit from this US-based labor force?
Is this something that Apple's Board should be debating? I don't know. I am as far from a Socialist as you can get but, as a thought experiment, I would like to hope that they discuss it.
If I discover any ways that I can flesh out the cost difference of US vs China manufacture of iPhones I will update this thread. In the meantime it is just a random question that popped into my head this week and I wanted to get it out there for comment.