Massive U.S. Investment by Apple, Valued at Over Half a Trillion Dollars, May Alter Company's Course
Apple Announces $100 Billion U.S. Investment to Boost Domestic Manufacturing
In a significant move aimed at bolstering its domestic presence, tech giant Apple has announced a $100 billion increase in its U.S. investment, bringing its total recent commitment to $600 billion over the next four years. The announcement, made on August 6, 2020, was made alongside President Donald Trump.
The investment decision comes at a critical time for Apple, as tariffs continue to be a concern for the company due to its manufacturing most of its iPhones in China. The White House announced new tariffs against dozens of countries to take effect on the same day, adding to the pressure on Apple to reduce its dependence on foreign manufacturing.
TSMC, the world's largest fabricator for high-level semiconductors, is also investing $165 billion in Arizona to avoid future tariffs. Apple will collaborate with TSMC for its American manufacturing plans, alongside companies like Foxconn, Pegatron, and Corning.
Initial partners in Apple's American Manufacturing Program include Corning, Coherent, GlobalWafers America, Applied Materials, Texas Instruments, Samsung, GlobalFoundries, Amkor Technology, and Broadcom. Apple will use Corning glass products for its iPhones and Apple Watches, and will work with Coherent to source VCSEL lasers needed for facial recognition and other services. GlobalWafers will produce chips for iPhones and iPads, with the products being fabricated by Texas Instruments and Taiwan Semiconductor Manufacturing's Arizona plant.
Apple's fiscal third-quarter earnings per share were up 12% to $1.57, and product sales were up 8.2%. The company's fiscal third-quarter revenue jumped 10% to $94 billion. Apple's stock jumped 5% on the day of the announcement, reflecting investor optimism about the company's plans to boost its domestic manufacturing capabilities.
Despite the increased investment in the U.S., Apple continues to get the lion's share of its revenue from its products, including smartphones, Macbooks, iPads, and wearable devices. However, the company's Services division has a far higher profit margin, and Apple's announcement includes concrete plans and partnerships to manufacture several components used in iPhones domestically.
It's unclear how Apple's announcement will affect the cost of its products. The company has faced criticism in the past for outsourcing manufacturing to countries with lower labour costs, and it remains to be seen whether the increased costs associated with domestic manufacturing will be passed on to consumers.
Apple's price-to-earnings ratio is currently 32, which is reasonable for tech stocks. The company is facing stiff competition from other tech giants, with Nvidia, Microsoft, Alphabet, Amazon rapidly closing the gap. However, Apple's continued focus on innovation and its strong brand reputation should help it maintain its market position in the long run.
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