A day after the Supply Chain Matters blog published our commentary: Foxconn Scales Back Wisconsin Manufacturing Plans- Again, global consumer electronics designer Apple made an interesting announcement. The consumer electronics icon indicated in a press release that the company accelerated its commitment to invest $430 billion in U.S. focused investments and spur upwards of 20,000 new jobs over the next five years.
The announcement references a 2018 commitment of an original five-year goal of $350 billion in investment over a five-year horizon, in essence upping the commitment by $80 billion. As with all things related to Apple’s corporate announcements that may involve supply chain or manufacturing investments, one has to cull very carefully.
Noted are: “. direct spend with American suppliers, data center investments, capital expenditures in the U.S. and other domestic spend- including dozens of Apple TV+ productions across 20 states, creating thousands of jobs and supporting the creative industry.”
The highlights of the consumer electronics company’s announcement includes a $1 billion investment in establishing a new “campus and engineering hub” in the Research Triangle sector of North Carolina. Additional investments outlined for other U.S. focused expansion include creating 20,000 additional jobs distributed in campuses such as San Diego, Boulder Colorado, Boston Massachusetts metro area, Washington state and Iowa. The highlight of this grouping is the ongoing $1 billion in construction related to a planned Austin Texas campus.
Regarding manufacturing and supplier investments, the announcement notes that the company is working with more than 9,000 U.S. based suppliers, large and small.
Apple makes specific mention of glass supplier Corning’s creation of Ceramic Shield, a new material that is tougher than any smartphone glass. Development was spawn from Apple’s Advanced Manufacturing Fund created in 2017. Yesterday, Apple announced that it is awarding $45 million from its Advanced Manufacturing Fund to Corning to expand the glass supplier’s manufacturing capacity in the U.S. and to drive research and development into innovative new technologies that support durability and long-lasting product life.
Further outlined were “tens of billions of dollars” invested across nine U.S. states in silicon engineering and 5G technology. As part of the company’s sustainability and $4.7 billion Green Bond spend effort, investments in solar and wind projects in Nevada, Illinois and Virginia are outlined. The release is bold in referencing jobs created by the iOS app economy which facilitated a reported $138 billion of commerce in 2019 in the U.S. alone. Stated was that more than 85 percent of the proceeds go straight to third-party developers. However, other business headlines related to friction and lawsuits would imply that developers have other views related to increased value received.
A further mention is that of the $100 million Advanced Manufacturing Fund investment to open a state-of-the-art facility and distribution center in Clayton Indiana, which will be operated by XPO Logistics and is expected to create 500 jobs by the end of 2024.
And yes, there is yet again zero mention of any contract manufacturing investment in the United States, including the Foxconn Wisconsin campus.
XPO Customer Fulfillment Facility
According to various reports, XPO will construct and operate a one million square foot E-commerce facility to allow Apple to ship products directly to consumers. According to a published report from FreightWaves, the consumer electronics designer is adjusting its distribution strategies after announcing last year that it would utilize its owned North America based Apple Stores to act as customer fulfillment entities for customers living within 100 miles of a particular store. That strategy was problematic for some customers because of the COVID-19 pandemic.
This facility is expected to be operational over the next 3-4 months and is the first ever contract among XPO and Apple. According to XPO, the deal was consummated in the first quarter, and reportedly the logistics services provider will not provide customer deliveries for Apple under this contract.
Last week, XPO Logistics announced Q1-2021 financial results and recorded $4.8 billion in quarterly revenues, and $115 million in net income. the highest values in this services provider’s history. In addition to the logistics deal with Apple, Brad Jacobs, Chairman and Chief Executive Officer of XPO noted the booking of a $1.8 billion, 11-year contract with an unidentified longstanding customer that extends and expands the relationship through 2032. This was noted as the largest contract in the company’s history and has come about because of investments in advanced automation and robotics within its operated logistics services facilities.
Reader Takeaway- What it Means
A majority of Apple’s product revenues increasingly come from Europe and Asia. In the final quarter of 2020, the U.S. accounted for only 40 percent of the designer’s total revenues. As noted in our previous Supply Chain Matters editorial commentaries, Apple remains essentially wedded to Asia-centric manufacturing and supply network to preserve its rather healthy product margins and profitability levels. While there are certain exceptions, as noted in the Corning instance, it is because the design and manufacturing process technology solely resides in the U.S. The new XPO arrangement is one of distribution and logistics for North America customer fulfillment, and the facility is described as highly automated. The size being one million square feet implies a significant amount of inbound and outbound shipment volumes with direct inbound from Asia to Clayton.
Beyond the $500 million in direct investment attributed to Corning and XPO are the usual generalities related to ongoing investments with U.S. suppliers but Apple will always remain secret as to which specific suppliers. As many in the industry are aware, Apple plays by its own rules and suppliers are at peril if they reveal associations or capabilities. With the advent of the new Biden Administration’s policies, Apple needs to be perceived as a responsible U.S. employer and investor in domestic capabilities and advanced technologies.
While we and others might have hoped that the Foxconn Wisconsin effort could have been an Advanced Manufacturing Fund opportunity investment in a manufacturing campus that could foster advanced manufacturing capabilities and added manufacturing jobs, the opportunity is now mute. Despite all of the company’s PR polish, its supply network strategy remains Asia-centric. With that comes the ability to adroitly navigate the growing geo-political trade and intellectual property tensions that are ever increasing, especially among China and the United States.
Apple’s stockholders are now richly benefitting from high margins and subsequent huge profits. Perhaps that is not the case for the bulk of the company’s supplier network residing in Asia.
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