groups of workers.52
In 2006, the 30GB Apple iPod retailed at $299, while the total cost of production, performed entirely overseas, was $144.40, giving a gross profit margin of 52 percent. What Linden et al. call gross profits, the other $154.60, is divided among Apple, its retailers and distributors, and—through taxes on sales, profits, and wages—the U.S. government. All of this, 52 percent of the final sale price, is counted as value-added generated within the United States and contributes toward U.S. GDP. Linden et al. found that “the iPod and its components accounted for about 41,000 jobs worldwide in 2006, of which about 27,000 were outside the U.S. and 14,000 in the U.S. The offshore jobs are mostly in low-wage manufacturing, while the jobs in the U.S. are more evenly divided between high-wage engineers and managers and lower-wage retail and non-professional workers.”53
Just thirty of the 13,920 U.S. workers were production workers (receiving, on average, $47,640 per year), 7,789 were “retail and other non-professional” workers (average wages, $25,580 per year), and 6,101 were “professional” workers, that is, managers and engineers involved in research and development. The latter category captured more than two-thirds of the total U.S. wage bill, receiving, on average, $85,000 per annum. Meanwhile, 12,250 Chinese production workers received $1,540 per annum, or $30 per week—just 6 percent of the average wages of U.S. workers in retail, 3.2 percent of the wages of U.S. production workers, and 1.8 percent of the salaries of U.S. professional workers.54 The number of workers employed in iPod-related activities was similar in the United States and China, yet the total U.S. wage bill was $719m and the total Chinese wage bill was $19m.
A study published by the Asian Development Bank (ADB) in 2010 reported on the first version of Apple’s next big product, revealing an even more spectacular markup: “iPhones were introduced to the U.S. market in 2007 to large fanfare, selling an estimated 3 million units in the U.S. in 2007, 5.3 million in 2008, and 11.3 million in 2009.” The total manufacturing cost of each iPhone was $178.96 and sold for $500, yielding a gross profit of 64 percent to be shared between Apple, its North American suppliers and distributors, and the U.S. government, all appearing as value-added generated within the United States. The main focus of the ADB study was the effect of iPhone production on the U.S.-China trade deficit, finding that “most of the export value and the deficit due to the iPhone are attributed to imported parts and components from third countries…. Chinese workers … contribute only US$6.50 to each iPhone, about 3.6 percent of the total manufacturing cost.”55 Thus, more than 96 percent of the export value of the iPhone is composed of re-exported components manufactured elsewhere, all of which counts toward China’s exports but none counts toward China’s GDP.56 The authors do not investigate in detail how these gross profits are shared between Apple, suppliers of services, and the U.S. government, but they can hardly avoid commenting on their spectacular size: “If the market were fiercely competitive, the expected profit margin would be much lower…. Surging sales and the high profit margin suggest that … Apple maintains a relative monopoly position…. It is the profit maximization behavior of Apple rather than competition that pushes Apple to have all iPhones assembled in the PRC.”57
This leads the ADB researchers to imagine a scenario in which Apple moved iPhone assembly to the United States. They assume U.S. wages to be ten times higher than in China and that these hypothetical U.S. assembly workers would work as intensely as the real ones do at FoxConn, calculating that “if iPhones were assembled in the U.S. the total assembly cost would rise to US$65 and would still leave a 50 percent profit margin for Apple.”58 They finish with an appeal to Apple to show some “corporate social responsibility” by “[g]iving up a small portion of profits and sharing them with low skilled U.S. workers” and re-shore iPhone assembly to the United States.59 The researchers do not consider Apple’s “corporate social responsibility” to the Chinese workers who are paid a pittance for their labor and who would be made redundant if Apple were to follow the ADB’s advice. And it should be noted that whether the profit margin is 64 percent or 50 percent, it is not just “Apple’s profit”—Apple must share this markup with its service suppliers and the U.S. government.
The first version of the iPhone was also the first-ever smartphone, so Apple’s initial markup might be thought of, in part at least, as a reflection of its unique status.60 Since then Samsung, HTC, Nokia, and other producers have launched their own smartphones—indeed, in the first quarter of 2014 Apple’s share of the global smartphone market had fallen to just 15 percent by units sold, half Samsung’s share. “Apple remains strong in the premium smartphone segment, but a lack of presence in the entry-level category continues to cost it lost volumes in fast-growing emerging markets such as Latin America,” said one industry analyst.61 Yet, seven years after the launch of the first iPhone, Apple has broadly succeeded in maintaining these exorbitant markups. According to a report by UBS researchers published in September 2013, the production cost of a 16GB iPhone 5C was $156, rising to $213 for a 16GB iPhone5S, while the retail price for each unlocked handset is $549 and $649 respectively, yielding gross profit margins of 61 percent and 67 percent.62 Nevertheless, according to the Financial Times Lex column, “Phones, even Apple’s, are becoming commoditised. Apple is selling more phones, but making less money: each iPhone went for an average $41 less than in the previous quarter as cheaper older models spearheaded an emerging markets push.”63
IT IS PARTICULARLY INSTRUCTIVE TO COMPARE Apple’s profits and share price with those of its principal supplier. In the year to May 2013 Hon Hai made $10.7bn in profits (on sales of $132.1bn), which works out as $8,685 for each of its 1,232,000 employees, compared to Apple’s $41.7bn profits (on sales of $164.7bn), or $572,800 profit for each of its 72,800 employees (47,000 of whom are in the United States). In May 2013, Hon Hai’s share price valued the company at $32.1bn; while Apple, with not a factory to its name, was valued at $416.6bn.64 Since overtaking Exxon in 2011, Apple has reigned supreme as the world’s most valuable company. During that year Apple’s earning growth was large enough to cancel out the decline in the earnings of all other U.S. companies, thereby providing crucial support to the U.S. economy as it struggled to emerge from the post-Lehman crash.65 Further boosting its share price, it has accumulated a huge cash stockpile—standing at $146.8bn at the beginning of 2014, despite returning billions of dollars to shareholders in a share buy-back scheme—that it has no productive use for.66
Meanwhile, in what one study called a “paradox of assembler misery and brand wealth,” Hon Hai’s profits and share price have been caught in the pincers of rising Chinese wages, conceded in the face of mounting worker militancy, and by increasingly onerous contractual requirements, as the growing sophistication of Apple’s and other firms’ products increase the time required for assembly.67 While Apple’s share price has risen more than tenfold since 2005, over the same period Hon Hai’s share price slumped by more than 80 percent. The Financial Times reported in August 2011 that “costs per employee [are] up by exactly one-third, year-on-year, to just under U.S.$2,900. The total staff bill was $272m: almost double gross profit…. Rising wages on the mainland helped to drive the consolidated operating margin of the world’s largest contract manufacturer of electronic devices … from 4–5 percent 10 years ago to a 1–2 percent range now.”68
The company is seeking cheaper labor and reduced dependence on the increasingly restive Shenzhen workforce, and as FT columnist Robin Kwong reports, “Hon Hai … has invested heavily in shifting production from China’s coastal areas to further inland and is in the process of increasing automation at its factories. As a result, Hon Hai last year saw its already-thin margins shrink even further.”69 FoxConn, which in 2013 reportedly relied on iPods and iPhones for at least 40 percent of its revenue, has moved its iPhone 5 assembly to Zhengzhou in northern China, where 100 assembly lines, each with three shifts of 600 workers working around the clock and exclusively occupied in iPhone assembly, churn out 500,000 handsets every day.70 Along with thousands more employed in the production of metal casings and ancillary staff, a total of 300,000 workers are dedicated to meeting Apple’s iPhone orders. Apple’s dependence on Hon
