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Apple's Supplier Foxconn to Set Up Manufacturing in U.S?

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Per media reports, one of Apple Inc.’s AAPL biggest suppliers, Foxconn Technology Group is thinking of setting up a manufacturing plant in the United States. Though the exact details aren’t available, Foxconn is interested in investing over $7 billion in setting up such facilities in the U.S.

Analysts note that that tech companies usually do not have manufacturing operations in the U.S because of higher labor costs involved than other regions like South East Asia. Apple has been subject to intense focus of President Donald Trump regarding this issue.

Throughout his campaign, Trump opposed Apple’s decision to manufacture goods overseas and even promised that he will urge Apple to bring manufacturing jobs back to the country. Trump was quoted speaking to The New York Times in Nov 2016, "One of the things that will be a real achievement for me is when I get Apple to build a big plant in the United States, or many big plants in the United States, where instead of going to China, and going to Vietnam, and going to the places that you go to, you’re making your product right here."

In fact, to alleviate Apple’s concern of increased prices of finished products, Trump told the company’s CEO Tim Cook that he will provide tech companies huge tax cuts.

These promised incentives seem to have succeeded in attracting manufactures. Foxconn CEO Terry Gou was quoted saying “If US state governments are willing to provide these terms, and we calculate and it is cheaper than shipping from China or Japan, then why wouldn’t Sharp build a factory in the US?". Foxconn bought the majority stake in Sharp Technologies, which supplies display panels for many major smartphone brands, last year for $3.5 billion.

Per Verge, this new facility could be in collaboration between Apple and Foxconn as Gou said that Apple, too, needs the display panels. The facilities could create 30 to 50K jobs in the U.S, something which Trump has been so focused on. However, Verge quoted Gou saying that manufacturing in the U.S will make prices go up as much as $500. So will consumers be happy about it? 

Moreover, analyst also remain wary as it could mean taking China head on. Setting up manufacturing in the U.S. will deprive China of many million manufacturing jobs and surely the Chinese government won’t be very happy about it. Foxconn has over 12 factories in China and Chinese workers form a majority of its 1.5 million strong workforce.

Gou stressed that these plans are not “promise” but a “wish” and there is also a possibility that it might not work out at all. Apple made no comment on the development.

Apparently, Apple is mulling to bring back manufacturing jobs to U.S. A few days back it was reported that Apple requested the government to allow it to use its Mesa, AZ facility to conduct "high-tech manufacturing". Apple had asked Foreign Trade Zones Board to allow it to manufacture “finished products and foreign status materials/components”. This is because “production under FTZ procedures could exempt Apple from customs duty payments on the foreign-status materials/components used in export production.” 

Per a Business Insider report, citing sources familiar with the matter, Apple will be using the Mesa facility to “build and configure servers” and then send it to other data center sites in the U.S. like Oregon and North Carolina. The Mesa manufacturing facility was set up by Apple in 2013 and was leased to a supplier to manufacture sapphire screen covers. However, after the supplier went bankrupt, Apple pumped additional capital of $2 billion to convert the facility into to a Global Command Center, powered entirely by green energy, to store data from iTunes and iCloud, adds the report.

At present, Apple has a Zacks Rank #3 (Hold). Apple’s shares have underperformed the broader market over the past one year. Shares of Apple have registered growth of 20.76%, compared with the Zacks Computer Mini industry’s gain of 22.08% in the said time frame.

Some better-ranked stocks in the wider technology space include Jabil Circuit Inc. (JBL - Free Report) , Veeva Systems Inc. VEEV and MeetMe, Inc. MEET. While Jabil sports a Zacks Rank #1 (Strong Buy), Veeva Systems and MeetMe carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the trailing four quarters, Jabil, Veeva Systems and MeetMe have generated positive average earnings surprise of 45.61%, 47.77% and 36.07%, respectively.

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