American manufacturing could make the Moto X too expensive
Last week, Motorola announced its upcoming flagship Android, the Moto X. We’d been following rumors of an “X phone” for months, so it was fantastic to finally get some official comments out of the company. Problem was, we didn’t really get anything juicy when it comes to phone hardware, software, or launch details, and the only thing Motorola seemed interested in talking about was how the Moto X would be made in the United States.
Right away, that started setting off all sorts of alarm bells in my head. Where have I heard a story like this before? One that very much did not have a happy ending?
A beat later it clicked: the oh, so public embarrassment that was last year’s launch of the Nexus Q.
Right out of the gate, the Nexus Q was in for a rough reception thanks to a $300 price tag that, for what the device actually did, seemed wildly excessive. After all, this was a gadget with mid-range specs like a dual-core TI OMAP SoC and 1GB of RAM, without the expense of a battery, display, or touchscreen, so why was it demanding such a premium price? It didn’t take long for blame to be placed squarely on the Nexus Q’s “Designed and Manufactured in the USA” label.
As a red-blooded American myself, I think it’s great that the tech industry is interested in shifting some manufacturing jobs away from Asia and creating more opportunities in the States, but I’ve got to wonder: won’t this just mean that the Moto X – and future devices produced at Motorola’s Fort Worth, Texas plant – end up being unaffordable when compared to their competition from overseas?
There’s an uncomfortable truth behind most of the electronics we buy: in order to have the most competitive prices possible, much of this gear is assembled by workers in Asia for wages that those of us living in the West might balk at. It may not be slave labor, but it’s hardly the level of compensation that seems appropriate for the kind of relatively skilled work needed to assemble delicate electronics.
Just how low wages are we talking here? Well, when we’re looking at companies really known for this kind of manufacturing, Foxconn’s easily one of the most visible. The good news is that the situation there has been improving. As of a year ago, the average Foxconn worker was taking home $350 a month, but the decision was made to bump salaries up to more like $630 a month, with a $690 target in mind for later this year.
Granted, differences in living expenses can make that money go farther than it would in the States, but we’re still talking about paying hardworking people something like $8000 a year.
Let’s put that in perspective: in the United States, the median pay for an assembly line worker comes out to about $27,000 a year, more than three times what the same employee might make in China.
Motorola can try and make its Fort Worth operation as efficient as can be, having robots assemble what they can, but it’s simply not going to be able to run things as cheaply as might be possible in Asia.
What’s the bottom line, though? How will this affect the prices of the Moto X and subsequent American-made Motorola smartphones? That’s not nearly so clean-cut. While this stuff is going to be more expensive to assemble, putting it all together is just one piece of what makes up the full retail price of hardware.
I’m going back to Foxconn, this time looking at estimates for the production of the iPhone 5. The individual components making up the iPhone 5 (16GB) are worth about $207, and assembly is projected to cost about $8 – a total of $215 to manufacture. Apple then sells the phone for $650.
Now, this isn’t exactly scientific, but if the average assembly line worker in the US is making just over three times what a Foxconn worker makes, let’s say that making the same product in the US would cost closer to $30. While that would raise the total manufactured cost to nearly $240, that’s only eating into the profit margin to the tune of six percent.
Could a smartphone company decide to simply eat that six percent, profit a little bit less from each sale, and offer an American-made phone at the same price of one assembled abroad? Abso-friggin-lutely.
Given the alternative, I’m also betting that’s what Motorola might be forced to do. After all, being under Google’s wing, it’s clearly aware of the Nexus Q debacle, and knows that while Americans love seeing “Made in the USA” stamped on stuff they buy, they love low prices just a little more.
But no company likes to just give money away, so I wouldn’t be surprised to see Motorola experiment with what it can get away with in terms of pricing for these upcoming products. Maybe it will start things off high and be forced to back down a few months later.
In the end, I really hope this gambit works. That said, there’s a darn good reason why smartphones aren’t made in the US already, and Motorola could very easily botch this if it’s not careful.