Following an interview with The New York Times last week, President Donald Trump granted another interview to The Wall Street Journal that was published earlier today. In it, our Tweeter in Chief made a bold assertion: Apple (NASDAQ:AAPL) has committed to building three manufacturing plants in the U.S.
"I spoke to [Tim Cook], he's promised me three big plants -- big, big, big," Mr. Trump told WSJ while discussing business tax reform and business investment. "I said, you know, Tim, unless you start building your plants in this country, I won't consider my administration an economic success. He called me, and he said they are going forward."
It's not clear which plants Trump or Cook are referring to, but it's very likely that the truth is lost in translation for the time being. Trump has a long history of exaggerating and lying, and Apple declined to clarify Trump's comments to numerous media outlets.
They probably wouldn't be Apple's plants
It's common knowledge that Apple doesn't operate its own manufacturing facilities, even if it owns much of the infrastructure and tooling equipment inside. The company taps a handful of prominent contract manufacturers (CMs) to assemble products. Apple had reportedly asked its two largest CMs, Foxconn and Pegatron, to evaluate the prospect of opening manufacturing plants in the U.S.
Pegatron CEO Liao Syh-jang told Focus Taiwan in March that it would be up for the task, provided Apple foots the bill (emphasis added): "If Trump institutes his Made in America proposal, it will be fine for Pegatron as long the client is willing to absorb the costs." Foxconn is also reportedly preparing to announce a "Made in America" initiative as early as this week, which could start with a facility in Wisconsin that would produce display panels.
It remains nearly unthinkable that Apple could shift any meaningful proportion of iPhone production to the U.S. The supply chain is far too established in Asia, and physical proximity is critical for supply chain efficiency. There's also the issue of talent. Both Cook and Steve Jobs have pointed to a lack of industrial and manufacturing talent in the U.S., which cripples its ability to manufacture iPhones domestically at a scale that would meet Apple's volume requirements. Cook has referred to these as "vocational" skills.
Beyond the possibility of CMs setting up shop, investors haven't heard any other rumors to suggest that Apple is seriously considering investing in domestic production, which appears to be what Trump is indirectly committing the company to.
The art of the deal
Trump actively targeted Apple on the campaign trail as part of his populist message, believing that getting Apple to bring jobs back to the U.S. would be an economic win. He even threatened to start a trade war with China, where iPhones are assembled. But then it appeared that Trump realized that providing incentives could work better. Carrots can be more effective than sticks, and the biggest carrot that Trump could offer would be some sort of relief from tax repatriation, which could potentially allow Apple to save billions if it were to bring cash home.
The Mac maker has accumulated over $100 billion in debt over the past five years in order to fund its share repurchase program. If Apple were able to repatriate a substantial amount of cash at favorable rates, it could either pay down some of that debt to strengthen the balance sheet (most of Apple's bonds have call provisions that allow the company to redeem and retire the paper), or simply hold off on issuing more debt for a few years and return that cash to shareholders directly.
As usual, it's hard to take Trump's comments at face value, given his inherent unpredictability. Investors should wait for some official word from Apple.