The rethink about manufacturing in highly automated US plants is one of the big changes coming out of the pandemic. Industrial robots cost the same anywhere.
By Wolf Richter for WOLF STREET.
Apple said today that it would invest $500 billion in the US over the next four years, part of which is centered around setting up a 250,000-square-foot manufacturing plant in Houston, Texas, to manufacture AI servers that had been “previously manufactured outside the US.” The factory is expected to open in 2026 and will create “thousands of jobs.”
“The servers bring together years of R&D by Apple engineers, and deliver the industry-leading security and performance of Apple silicon to the data center,” Apple said in the press release.
The investment also includes $5 billion for its U.S. Advanced Manufacturing Fund, doubling it to $10 billion. The fund was created in 2017 “to support world-class innovation and high-skilled manufacturing jobs across America,” Apple said. The fund has already supported manufacturing projects in 13 states “that have helped build local businesses, train workers, and create a wide range of innovative manufacturing processes and materials for Apple products,” Apple said.
That expansion “includes a multibillion-dollar commitment from Apple to produce advanced silicon in TSMC’s Fab 21 facility in Arizona,” which produces semiconductors, of which Apple is the largest customer. Mass production of Apple chips began “last month,” Apple said.
Among the other elements of the $500 billion investment is the “Apple Manufacturing Academy” that it plans to open in Detroit to “help companies transition to advanced manufacturing.” Apple engineers and experts from top universities “will consult with small- and medium-sized businesses on implementing AI and smart manufacturing techniques.” The academy will also offer free courses to teach workers “vital skills like project management and manufacturing process optimization.”
Those investments in US high-tech manufacturing would be a far better use of cash than incinerating this cash on share buybacks.
Part of the purpose of this big-kahuna announcement was obviously a publicity stunt with the Trump administration.
But the rethink about manufacturing in the US is real.
The pandemic-era supply-chain chaos and the strategic problems with China triggered a corporate rethink about offshoring manufacturing, especially with regards to China.
Apple has been among the companies that have made efforts to manufacture more in the US, or shift to US manufacturers to source components and materials. So part of the big-kahuna announcement today has likely been planned for a while, and some of it may already be in the implementation stage. We can see that in Apple’s deal with TSMC’s Arizona plant. Those deals don’t happen overnight. But the server factory in Houston could be a new development.
The Biden administration rolled out huge incentive programs for manufactures to set up plants in the US, especially semiconductor fabs with the CHIPS act. And they’re being built.
The Trump administration, instead of paying companies to build plants in the US, has threatened to tax their imports, which has a similar effect as Biden’s subsidies in that they further encourage the corporate rethink about manufacturing in the US. But tariffs don’t transfer funds from individual taxpayers to the biggest and richest companies globally, which is what Biden’s programs did. Tariffs are a tax on importers’ gross margins and gross profits.
We discussed tariffs recently in two articles: What Trump’s Tariffs Did Last Time (2018-2019): No Impact on Inflation, Doubled Receipts from Customs Duties, and Hit Stocks, and Some Basics about U.S. Tariffs, and What Trump’s New Economic Team Said about Tariffs.
The eyepopping factory construction boom.
Investments in the construction of manufacturing plants in the US in 2024 jumped by 20% from 2023, and by 184% from 2021, to a record $233 billion, according to data on construction spending from the Census Bureau.
These investments in factory construction do not include data centers (which are included in office construction), or industrial facilities, such as buildings designed for warehouses and fulfillment centers (even if they’re eventually used for manufacturing as well). This metric of factory construction spending tracks purpose-built manufacturing plants.
These amounts cover the building itself, plus equipment such as HVAC systems, but not the industrial robots and other manufacturing equipment inside the building, which can cost many times more than the building. The total cost of a big chip plant might reach $20 billion, but the construction costs might be only a small fraction of it. And only the construction costs are included here.
These facilities being built in the US are highly automated and will produce complex high-value products. Plants for the production of semiconductors, EVs, EV batteries, electrical equipment and components, etc. are on top of the list. Apple has added an AI-server plant to it.
Factory Construction doubles its share of total construction spending.
Manufacturing plants’ percentage share of total construction spending – dominated by residential construction – has doubled since 2019 and more than doubled since 2021, to a share of 10.8% for the 12 months through December. This ratio cancels out the impact of construction cost inflation.
The risks and costs of globalization and China-dependence became all too clear during the pandemic. The increasingly complicated and stressed relationship between the US and China has exposed the scary dependence by US companies on production in China as a fundamental risk, not only for the companies, but also for national security. These are strategic issues.
Trump, during this first term, was the first president who had the gumption to be a China hawk, against a revolt by Corporate America and entrenched globalization-mongering economists and media. Biden followed in his footsteps. And the new Trump administration is moving further into that direction.
But it takes years from deciding to build a huge complex automated factory to actually being able to ramp up mass-production in that factory. These are long-term moves that don’t happen from one month to the next.
Industrial robots cost the same anywhere. They’re the great equalizer. In modern highly automated manufacturing, manual labor is a much smaller cost component on a per-product basis. In addition, manufacturing in the US reduces transportation costs, the risks of loss of Intellectual Property (IP), a given in China, lead times, and other risks and costs.
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Any idea-r of the dollar amount companies will/receive (Govt Payments/Incentives) either via Inflation Reduction Act and/or State/Local tax incentives?
Wolf…I hate to say it but here goes: I think that in the age of robotic manufacturing where automation is eliminating human jobs, we will need to set up a kind of “social security” contribution system for robots and AI that destroy human jobs. Companies will need to pay an SS contribution for every robot; maybe small, but necessary to take care of the middle class workers whose jobs are destroyed.
LOL, nonsense.
1. Automation and industrial robots have existed for many decades. That is not new. What is new is that they’re constantly getting better. There are still jobs at automated factories, but these jobs are highly qualified and skilled, including tech jobs. And they pay well and generate payroll taxes.
2. And these are ADDITIONAL NEW jobs that didn’t exist before because these are NEW manufacturing plants! These NEW plants ADD NEW jobs, not subtract. And those jobs won’t be unskilled labor, they will be highly skilled labor, including tech jobs, and they will generate lots of NEW payroll taxes.
“In 1970, the telecommunications industry employed 421,000 well-paid switchboard operators. Today “disaster” has hit the telecommunications industry, because there are fewer than 20,000 operators. That’s a 95 percent job loss. The spectacular advances that have raised productivity in the telecommunications industry have made it possible for fewer operators to handle tens of billions of calls at a tiny fraction of the 1970 cost.”
— Walter Williams (RIP), George Mason University.
The job loss for operators is approximately 100% now, of course. Individual industries cycle, yet the economy — general employment with it — advances. But not evenly over time.
When they become sentient beings, they may need Social Security. Good idea!
Jim Chanos commented on the absurdity of investing 500B from a capital base of ~100B. Will Apple, a company who’s growth is sub-par invest with debt?
With more automation in manufacturing, the move to have less humans working seems ominous. We have to steadfastly believe that disruption of these sorts will provide humans to find other ways to employ themselves. Can every one be creative and change for the modern times?
I’d rather see 300 US citizens running a highly automated factory in Texas than 3000 Chinese laborers building phones by hand and shipping them over as part of our trade deficit.
If that is what Chanos said, it was an absurd idiotic comment by him.
The $500 billion doesn’t come out of Apple’s capital today. It’s stupid to even say that. It’s spread over 4 years and comes out of Apple’s cash flow that it previously blew on share buybacks. Apple can also borrow, which it has done to fund part of the share buybacks.
Apple makes close $100 billion in net income every year! Doesn’t Chanos know that???? $400 billion over four years.
For 2024, Apple planned to waste $110 billion on share buybacks. Doesn’t Chanos know that??? Apple has been wasting close to $100 billion cash on share buybacks every year for years. There’s $400 billion right there that it could have invested in the US over those four years.
Part of the $500 billion was already included in prior planning, such as the TSMC stuff, and we don’t know how much is new. Maybe $400 billion is additional? Maybe $100 billion? And the rest was already part of Apple’s regular capital expenditures, though more of it shifted from overseas investments to the US investments. If it invests that additional in the US over the next four years, instead of blowing it on share buybacks, that would be a great thing, except for the share price maybe.
This was his exact quote
Apple’s current capital base is less than $160B. Any serious discussion of a $500B capital deployment is a bit…unrealistic. $AAPL
Wolf – anything to discuss in regards to the services PMI print last week ?
No, month to month sentiment indicator. Look at a longer-term chart.
Another thing Trump will take credit for. Unfortunate.
Already did.
Apple’s announcement is big news but the backstory is not getting enough coverage. As you mention, the hard construction costs are the tip of the spear. Deeper coverage of the total investment in onshoring would be appreciated.
What exactly are these “AI servers” they are manufacturing? Is Timmy bringing back the Xserver product line or are these AI servers for their own SaaS ecosystem?
From Apple’s announcement, the entire relevant section:
“Previously manufactured outside the U.S., the servers that will soon be assembled in Houston play a key role in powering Apple Intelligence, and are the foundation of Private Cloud Compute, which combines powerful AI processing with the most advanced security architecture ever deployed at scale for AI cloud computing. The servers bring together years of R&D by Apple engineers, and deliver the industry-leading security and performance of Apple silicon to the data center.
“Teams at Apple designed the servers to be incredibly energy efficient, reducing the energy demands of Apple data centers”
Some of this spending is spread out with other technology firms under joint ventures. A new 250,000 square foot plant to be built in Houston is a good thing (location not disclosed as of yet) and will add jobs (construction, plant internals installation, staffing, engineering, etc). All this is good stuff.
It’s certainly better news than hearing something like “Apple will build a new phone assembly plant in India”.
Wolf,
Building things is great, especially for the construction industry. However, I have two simple questions. 1) Who or what person, corporation, or county is buying the items being produced? To reduce the trade deficit one has to hope our trade partners are the largest customer and have already placed orders (hence the need/demand to produce), but why would a country like China buy things from us? 2) What sort of tax breaks are these manufacturers getting? The last thing this deficit/debt burdened country needs is more tax breaks. On another note, these manufactures are sucking up tremendous amounts of water, power, and resources. Are we sure this is the best use of this precious wealth? Seems like this is too-little too late. All the other bubbles and capital mis-allocation hasn’t worked out so now we are going to blow a manufacturing bubble? Is there really this much demand for these products (whatever the hell the products are)?
1. You keep posting the same question, I keep telling you the same answer: These US-manufactured products REPLACE FOREIGN-PRODUCED PRODUCTS. The US has a $1.2 trillion trade DEFICIT in goods, and manufacturing in the US will reduce the trade deficit at the expense of foreign manufacturers. Those foreign manufacturers will just lower some business. No biggie.
In this case, Apple is manufacturing these specialized servers initially for its own data centers, which have created for years huge demand for servers.
2. Under Trump, the incentives are shifting from giveaways (Biden) to avoiding tariffs. I explained this in the article.
3. Let the manufacturers decide how they will deal with the details. That’s not your job. It’s their job. And they tend to be able to figure those things out over time.
Please put those tariffs up President Trump, and bring more manufacturing back to the USA.
All of my apple products are already produced in the USA – Red Delicious, Fuji, Granny Smith, Honeycrisp and more. I love my tech.
Yep. Never purchased anything Apple, never will.