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.
To counter your number 2, not all the new factories replace ones that are overseas. Some of them replace old facilities that are already here, and those do cause job loss.
Further, automotive manufacturers as a great example have been automating and eliminating jobs for decades. This will continue in existing plants everywhere.
We keep moving into highly skilled and low skilled jobs outside of the construction sector. The medium skill jobs keep falling. This is why there is a huge disconnect between how the numbers show the economy is doing well, but many many Americans are unhappy with the economy.
“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.
Good point JH, but I would like to confirm to those who have never gotten their hands dirty or carpal tunnel syndrome to the point of losing their physical grip that almost all the lower skilled jobs going away were and still are very hard on human bodies.
The retirement age advances with the advances of better skilled jobs that also leaves one’s body able to enjoy the ”GOLDEN YEARS” in spite of what Dr. Seuss might say, LOL
”I cannot see
I cannot pee
I cannot chew
I cannot screw
Oh My God What can I do?
My memory shrinks
My hearing stinks
No sense of smell
I look like hell
My mood is bad–can you tell?
My body’s drooping
Have trouble pooping
The Golden Years have come at last
The Golden Years can kiss my ass.””
As an old Blue Lady at the local hospital once told me “Sonny if you think of the alternative, getting old isn’t so bad.”
VintageVNvet-
Love Seuss!
I always thought The Cat in the Hat and the sequel — with the pink ring fiasco — was a pretty good analog for the Fed’s technocratic actions and aftermath.
Very difficult (without imaginary “VOOM”) to weed out structural inflation and/or economic malaise once the mischievous money production experiments have occurred. The Cat as a role model!
Cheers
When they become sentient beings, they may need Social Security. Good idea!
For a cutting edge fab (fabrication plans) for TSMC or Intel, the estimate is around 500 employees. The older plants employ around 5,000
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
That makes more sense. Apple only spends 9-10Bn per year in total “Payments for acquisition of property, plant and equipment” per their cash flow.
The 500Bn appears to be what they intend to spend over 4 years across everything they buy in the US
“The $500 billion commitment includes Apple’s work with thousands of suppliers across all 50 states, direct employment, Apple Intelligence infrastructure and data centers, corporate facilities, and Apple TV+ productions in 20 states”
It doesn’t mean new spending from what I read. They say
“Today, Apple supports more than 2.9 million jobs across the country through direct employment, work with U.S.-based suppliers and manufacturers, and developer jobs in the thriving iOS app economy”
It mentions 20,000 new hires over 4 years. At a generous 100k per year per hire that is 2Bn.
1. RTGDFA before commenting.
2. It’s not a question of investing, but of INVESTING IN THE US. Apple shifted investing in foreign countries to investing in the US. That’s the key point here.
3. This IS “investment” and not “expenses,” such as salaries which are OPERATING EXPENSES.
Maybe Chanos missed the “over 4 years part”.
But also, if AAPL shifts from share buybacks to capital investment over the next 4 years, did Berkshire see this coming and exited most of AAPL position because this shift would eliminate the largest (I’m assuming the largest?) valuation agnostic buyer of AAPL shares annually?
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”
Apple has historically relied on other cloud providers (eg Azure, Google, AWS) to host iCloud and other data. It looks like they are slowly building up their own infrastructure to lower costs, have more control, power their own AI, etc.
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”.
Apple’s renaissance happened under Steve Jobs’ second watch. Larry Ellison of Oracle (a friend of Jobs) says it very succinctly: without Jobs, there would be no behemoth Apple in the world today.
What Jobs did was learn from his time at Pixar, which smoothed many of his younger years’ rough edges out. He emerged as a better manager and kept his “reality distortion field” motivating skills. That’s really the secret as to why Apple was able to go from iPods to iPhones in under a decade.
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.
Where do your apples come from in the summer?
Controlled atmosphere storage.
Strategic Apple Reserve
“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.”
And neither Biden nor Harris or any Dem for that matter talked about this for 30 seconds last year. It’s incredible how poor Dems are at salesmanship.
This spending spree on AI-related technology, be it chips, servers, electricity generation, fiber optics, routers, and the humans needed to support it is breathtaking to watch. High margin companies such as Meta, NVIDIA, Microsoft, Alphabet, and private equity firms are plowing several $100 billion annually into this build. They will need plenty of help from downstream high-tech manufacturers, plus help from state governments to support electric grid growth. Think of it as a massive dividend for downstream supporting businesses.
From what I read earlier on this story this is more of PR move, most of the plans Apple announced have been in works for many years already, and that they are potentially speeding them up. Maybe it gets built maybe the plans get paused, like their expansion campus in the NC research triangle.
It’s not a question of spending, but of SPENDING IN THE US. Apple shifted investing in foreign countries to investing in the US. That’s the key point here.
And yes, Apple has been doing that since the pandemic, including the TSMC deal to manufacture chips in Arizona, which started mass production of Apple chips a month ago, so that’s not new, but it IS IN THE US. The factory in Houston is new.
Good for Trump! Bringing manufacturing back to the US by carrot or stick is good.
The caveat is as long as employment is maintained with living wages OR taxes are collected to support the unemployed, this is good.
Reduces “the risks of loss of Intellectual Property (IP)”.
From the looks of all the scraping for AI and the promoters of such scraping, that’s a save on risk of loss of IP they call “for me, but not for thee.”
I was today years old when I learned the word ‘gumption’ thanks to WOLFSTREET.
I’d be happier if they’d start building more factories in places that NEED more industry. Phoenix and Houston are already oversupplied. The midsection from Pennsylvania to Kansas NEEDS industry.
The Academy is an unquestionably good thing, especially since it’s in Detroit instead of Houston. More training has to come before more factories.
Taxes and Right to Work laws.
I’m curious as to why they picked Houston versus Dallas. I spent some time back in the day in Texas… Dallas seemed to me to be the more ‘techy’ / ritzy place with glitter versus the ‘get-r-done’ grittiness of Houston.