Will Robots Boost Profits For Apple, Inc?

Apple contract manufacturer Foxconn might use robots to help assemble iPhones

Jul 8, 2014 at 4:00PM

A tidbit of information from the recent shareholders event held by contract manufacturer Foxconn got the blogoshere and fanboys of Apple, (NASDAQ:AAPL) in a tizzy recently. One translation of the meeting minutes indicated that Foxconn will use 10,000 robots during assembly of the new iPhone, rumored to be released this fall. Subsequent reports indicated that robots will not play an important role in the manufacturing of the device. At least not today.

How could this affect investors of Apple and competitors like Samsung Electronics Co., LTD (NASDAQOTH:SSNLF)? Another major Foxconn customer, Google, (NASDAQ:GOOG) (NASDAQ:GOOGL), is already involved in robotics and automation. 

The trend toward factory automation is important in the mobile industry. As average selling prices decline, manufacturers will need to firm up margins or become less profitable. Reducing production costs by introducing robotics could go a long way toward making that happen.

Foxconn would likely collaborate with its most important customer in any such venture. The Taiwanese company relies on Apple for nearly half of its revenue, and of course would like to see the relationship continue. In an effort to stay ahead of its main rival Samsung, Apple has committed to spend $10.5 billion during fiscal 2014 on new technology, including advanced manufacturing methods such as robots.

The so-called "Foxbots" won't be able to do the majority of the assembly right now and would probably be only used in some operations like polishing of displays, movement of equipment around the factory, and testing. Most tasks would be too complicated even for the bots. In a more immediately bullish sign for Apple, Foxconn reportedly is bringing 100,000 additional workers onboard to meet the anticipated high demand for the new iPhone. 

More success for Apple would come at a bad time for Samsung. The South Korean company recently announced less than stellar results that missed most analyst estimates. Samsung states that growth should pick up going forward but then it will have to struggle to deal with the upcoming iPhone release and increased competition in the low-end from upstarts in China. The company is getting it from both sides. It might be best to avoid Samsung stock for now.

Google is investing heavily in robotics. It was announced last year that the company has acquired at least eight robotic firms. No word on exactly how automation would fit in yet but it's possible that the technology would be used in the self-driving cars that are under development or in the burgeoning Internet of Things which Google is involved in. Maybe a robomaid around the house to go along with the Nest smart thermostat. However, any benefit would likely be many years away. 

Google Robot

Google Images

For now shareholders will have to be content with Google maintaining its dominant position in Internet search which generates billions in ad revenue for the company. Google has been investigating ways to ensure that the success continues. A project that would involve hot air balloons, and maybe drones and satellites, to expand Internet access to hard-to-reach locations is under way. Management probably figures that the more users that go online the more would navigate Google's way. 

Lots of innovation going on at the Googleplex. Let's see if it pays off someday.

Foolish conclusion
A report that contract manufacturer Foxconn will use robots to help assemble the iPhone is generating a lot of discussion within the smartphone industry. Whether the rumor is true or not probably will not have any immediate impact for Apple investors. A more credible report that Foxconn is boosting its staff by up to 100,000 to expand iPhone production may be more bullish.

However, over the long term, the increased use of automation in the industry could pay off for Apple (and Samsung if the South Korean company goes the same route) by reducing production costs. Google's interest in robotics may be linked to its driverless car or the Internet of Things, which probably won't move the needle for the company for some time. Shareholders may have to rely on continued success from Internet search for now.

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Mark Morelli owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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