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The pros and cons of manufacturing smartphones in the U.S.

At last week’s AllThingsD conference, CEO of Motorola Dennis Woodward announced the company’s intention to begin assembling smartphones in the United States.
June 3, 2013
Foxconn factory assembly line, China.
Credit: AP- Kin Cheung

At last week’s AllThingsD conference, CEO of Motorola Dennis Woodward announced the company’s intention to begin assembling smartphones in the United States. Some components would still be manufactured overseas, granted, but the sheer size of Motorola’s planned operation – utilization of a 500,000-square-foot plant and employment of about 2,000 people – show a meaningful commitment to U.S.-based manufacturing. The company’s move comes at an interesting time: Apple CEO Tim Cook recently committed to domestic assembly of iMacs, and Google experimented with U.S.-based manufacturing just last year.

It’s no secret that manufacturing in the U.S. has been on the decline for several decades. Industry Week reports that, over the past 13 years, 3.5 percent of factories closed each quarter while 2.9 percent opened. A number of prominent companies have closed their U.S. plants, some as recently as this year. Just today, the Institute for Supply Managements Index of Purchasing, an important measure of manufacturing activity in the United States, declined below 50, signaling contraction.

What can consumer electronics companies like Motorola hope to accomplish in such a tough climate? Some point to the automobile industry as an example of offshore manufacturing which brought profitably back to U.S. shores, but that kind of comparison might not be fair. Consumer electronic company executives cite lack of flexibility and skills as reasons device manufacturing remains almost exclusive to Asia. Cost remains a concern for some, as well: according to one estimate, Apple would have to increase the price of a 64gb iPad to nearly $1,200 if it moved assembly to the U.S. and wished to retain the same profit margin.

Motorola X Phone
Credit: Bloomberg

There is something to be said for United States manufacturing, though. One key benefit is proximity. An executive for ET Water Systems, a California company that recently moved a majority of operations from China to the U.S., said in an interview with the New York Times that real-time collaboration is helpful when developing products. Supervision of the prototyping process is infinitely easier when it requires a short car trip rather than flights to China, he said. A recent development may make the U.S. more attractive than Asian countries for manufacturing, too. Somewhat surprisingly, the cost of Chinese fabrication is growing less competitive as energy and labor costs continue to rise.

Logistics are complicated, more so where shareholders are involved. Companies always strive to maximize profitability, which can be difficult in the hardware business. Even corporate behemoths like Google have tried and failed to sustain assembly programs in the U.S. What hope does Motorola have, then, of making the Fort Worth, Texas plant profitable? Apple’s supposedly seen success with the latest U.S.-built iMac, and some companies have shown confidence in domestic manufacturing. If assembly costs are kept low and Motorola’s products prove successful, the company’s grand experiment may just become an industry-wide trend.