iPhone builder Foxconn will open factory in Wisconsin

Foxconn, the Taiwanese maker of Apple Inc.’s iPhone, will build its first American factory in Wisconsin, a sprawling campus to produce liquid-crystal display panels that would represent one of the largest investments by a foreign company in the United States, officials said Wednesday.

The factory is expected to add 3,000 to 13,000 direct jobs and amount to a $10-billion investment, a move that will boost President Trump’s credentials in his pledged goal to bring more overseas jobs back to the U.S.

“We are committed to creating great jobs for American people,” Foxconn Chairman Terry Gou said at a news conference at the White House on Wednesday attended by Trump, Vice President Mike Pence, House Speaker Paul D. Ryan (R-Wis.) and Wisconsin Gov. Scott Walker.

Trump said the investment was a show of confidence in the U.S. economy and his leadership.

“If I didn’t get elected, [Gou] definitely would not be spending $10 billion,” the president said.

Foxconn is best known as the assembler of the iPhone, and it relies on Apple for more than half of its business. It’s unclear if Apple, which has not responded to several requests for comment, will have any role in the Wisconsin plant.

The developments came the day after Trump said Apple Inc. had committed to build three “big” manufacturing plants in the U.S., although Apple did not announce that, nor did the company respond to a request for comment.

Ever since he kicked off his presidential campaign, Trump has tried to champion a return of overseas manufacturing jobs to the U.S. — particularly from China. Foxconn employs more than a million workers.

In April, Trump met with Gou, who has long shown an interest in building a factory in the U.S. In 2014, Gou told reporters he wanted to relocate capital-intensive and high-tech manufacturing to America, the company’s biggest and most important market. Such a move would help the company deliver its most sophisticated and largest flat-screen TV panels to U.S. customers without the complication of shipping from Asia. It would also give Foxconn access to American know-how to better the company’s chances of diversifying its business beyond contract manufacturing at a time when sales of smartphones and tablets are slowing.

“Automation, software and technology innovation will be our key focus in the U.S. in the coming few years,” Gou said, according to the Wall Street Journal.

Foxconn has every intention of establishing itself as a major player in TV sales, having spent $3.8 billion last year to acquire Sharp.

“They want to move up the food chain and not just be a supplier of iPhones,” said Wayne Lam, an analyst for IHS Markit.

Until now, Foxconn’s interest in the U.S. had been seen by some as bluster. The company had pledged to invest $7 billion and hire 50,000 American workers shortly after Trump’s election. But an earlier promise to invest $30 million and hire 500 workers in central Pennsylvania has yet to materialize. Still, any move to expand production onto American soil could be viewed as politically advantageous.

“Given the recent shifts in public perception and policy dynamics around offshoring, a move to establish or repatriate manufacturing activities could help a provider appeal to domestic consumers, and perhaps more importantly, gain favor with policymakers,” wrote Gartner analysts Sam New and Kamala Raman in a joint statement.

The analysts also said it was beneficial for Foxconn to open factories in several countries to shield against any shocks in the supply chain like the 2011 Japanese earthquake and tsunami that upended Asian suppliers and manufacturers of electronics.

Before the Wisconsin decision, Gou had reportedly been looking into several states, including Michigan, North Carolina, Ohio and Pennsylvania. Wisconsin put on a full-court press for Foxconn by showing company representatives potential sites, introducing them to local officials and even inviting them to a barbecue at the governor’s lakeside mansion.

But the bid for the Taiwanese manufacturing giant has already stirred controversy over how much the state intends to provide in incentives.

In Wednesday’s announcement, Walker said his state would spend $3 billion in incentives to help build a 20-million-square-foot factory campus, the size of 11 Lambeau Fields. One other advantage for Wisconsin is that it offers an exemption on taxes for manufacturing profits.

Playing local officials off each other is nothing new for Foxconn, which built an electronics manufacturing empire in China in no small part because local governments offered generous enticements for the promise of hundreds of thousands of jobs. Foxconn’s symbiotic relationship with Apple gave rise to factory towns in places like Zhengzhou in China’s central Henan province. Officials in the so-called “iPhone City” provided Foxconn with $1.5 billion to construct sections of its factory. The city also built roads and power plants and helped recruit workers for the factory, according to an investigation by the New York Times.

Foxconn’s first U.S. plant will almost certainly be nothing like its factories in China, all-encompassing campuses that operate like cities with their own dormitories, hospitals and Internet cafes. The often grueling work churning out products for Apple, Samsung and Sony, to name a few, has notoriously taken a toll on young Chinese factory workers, resulting in a spate of suicides over the years.

But keeping American workers happy may be one of the easier challenges facing Foxconn in Wisconsin. Higher labor costs can potentially be absorbed in a trade-off for cheaper distribution and cutting-edge automation. Ramping production up to rival China is another story, however.

A study by MIT Technology Review estimated that an iPhone 6s Plus, which costs $749, would sell for between $779 and $789 if it were manufactured in the U.S. using the same global supply chain. The same phone made with components sourced entirely domestically would cost between $809 and $849. The problem, the study noted, is that it would be almost impossible to source all the components from the U.S. Almost half of Apple’s suppliers are in China, all with access to well-established distribution networks and skilled labor that helped the company sell 212 million iPhones last year.

“There’s no way plants in the U.S. can produce 200 million iPhones. It’s just impossible,” said Lam of IHS Markit, who did not participate in the MIT study. “They would need the skill sets that don’t exist here anymore.”

Experts say it makes sense for Foxconn to start with LCD panels; their production is largely automated and requires skilled technicians and engineers not unlike the production of semiconductors. Building them in the U.S. mirrors Apple’s decision to produce its high-end computers through American manufacturers such as Flex Ltd. in Austin, Texas, and Quanta Computer Inc. in Fremont, Calif., according to the Journal.

“The economics of LCD panels is different from iPhones,” said Jason Dedrick, a professor at the School of Information Studies at Syracuse University. “You can find the resources and the skilled labor. It’s more a question of what subsidies you get.”

Such a move by Apple would represent a major change in strategy for the world’s most valuable company and boost the White House’s long-held promise to return overseas factory jobs to America.

Trump told the Wall Street Journal on Tuesday that Apple Chief Executive Tim Cook told him the new factories were already in the works.

Apple has said little about its plans to boost manufacturing in the U.S.

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UPDATES:

3:15 p.m.: This article was updated with details of Foxconn’s plans disclosed during a news conference with President Trump.

This article was published at 9:15 a.m.

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