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back to article Moto X teardown shows US manufacturing adds mere $4 to handset costs

It's taken as gospel by businesses – particularly in the technology industry – that when it comes to manufacturing, offshoring production to Asia is the only way to go. But a Moto X teardown by analyst house IHS shows this to be faulty logic. Moto X teardown by IHS Pieces of X (source: IHS) Motorola has been heavily marketing …

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WTF?

This "OK Google now", is it customisable, or not? Otherwise it sounds like they are trying to brainwash mobile phone users.

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Re: WTF?

Imagine it catches on and you and six friends have phones out on the table. Oops.

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Coat

Here it goes again..

I hear you don't have to say the whole thing, but just the first two syllables.

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Mushroom

Re: WTF?

Yes it is, it's basically voice search and contextual with what you are doing with google products (your choice you know!) but obviously you are just trolling or have already been brainwashed by Apple & think that Siri is actually good at all.

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Re: WTF?

"Imagine it catches on and you and six friends have phones out on the table. Oops."
It doesn't even have to catch on. Imagine some poor sod is just walking down the street with one, and someone shouts out "Google sex with goats".

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Interesting

Also the Raspberry Pi foundation brought manufacturing of the RPi to Wales and kept the same retail price. It would be nice to see this become a trend, would I pay a little more for a comparable UK built smart phone? Yes I would and for more reasons than just a bit of patriotism(but that does count).

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Anonymous Coward

Re: Interesting

Speaking as someone who actually worked for Motorola in Scotland in a factory making (at the time) cutting edge phones (circa 1998, Moto v3688) , I would welcome this sort of manufacturing coming to the UK in some form. The factory was never a problem - good quality, cheap etc. Production simply followed government subsidies, first to Flensburg in Germany, then with everything else to Asia because it was at the time the right thing to do.

The time will come when Asia isn't cheap to make things in any more.

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Re: Interesting

So the complex chips are fabbed in state of the art facilities in Korea by Samsung, the low cost memory chips are made in china and the PCB is assembled by German pick and place robots in a factory in Wales that is presumably only profitable because it's getting a bunch of regeneration grants - but it's a victory for British manufacturing?

Well at the least the CPU's instruction set is made in Britain!

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Import Duty

No idea what the tax system is like in the US, but I remember reading this when I got my Raspberry Pi.

http://www.raspberrypi.org/archives/509

Basically merely from a tax point of view, it's cheaper to get the bits all soldered together abroad, than so the soldering here.

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Happy

Re: Interesting Chips can be made in USA too.

Samsung has a large manufacturing facility in Austin, Tx. Maxim integrated has a fab in San Antonio, Tx that makes a lot of phone chips.

I am not sure where the chips come from for this phone but I wouldn't be surprised if some came from Texas.

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Anonymous Coward

Re: Interesting

"The time will come when Asia isn't cheap to make things in any more."

Yup, when the labour rates in the US/UK have been driven below those of Asian countries.

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Anonymous Coward

Re: Interesting

There is a lot to be said of that - UK manufacturing means UK jobs, less benefits paid out, more tax paid in etc. - so the $4/£4 extra on a phone etc. could be cheap when you factor that in.

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Re: Interesting

They had a huge factory in Swindon - it was used in at least one film, James Bond I think.

s'Funny, an Asian company (Honda) can make cars in Swindon and make them well and profitably, but Motorola can't make mobile telephones there any more.

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Supply Chain is the Key

I think the real key to asian assembly is the fact that the battery guy is next door, the fasteners two blocks over, pcb across the street, final assembler in the next town, etc etc etc.

It's very hard to practice just-in-time / lean manufacturing without (relatively) close proximity to the rest of your supply chain.

The fix to the supply chain issue is that someone just has to start making something somewhere and then other businesses will come in to support them.

Projects like these should be encouraged not just for the headlines of building something, but because they encourage investment in the greater supply chain capabilities of the given area.

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Re: Supply Chain is the Key

I'm not so sure of that. Cost of getting components halfway around the world is only a few dollars per phone at the most and less than 24 hours. I suspect that there are labour, tax, and capital issues that are more powerful motivators to explain recent manufacturing history.

Assembling is just as commodity as the component making. The real high value is in the hardware integration engineering and software development, both of which are primarily in the US for Motorola. The assembly employees get just above minimum wage up to a whopping $17/hr for test technicians and production leads:

http://www.theatlantic.com/business/archive/2013/08/motorolas-new-smartphone-made-in-the-usa-but-not-for-much-pay/278270/

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Re: Supply Chain is the Key

it's not the shipping cost so much as time and predictability.

If a typhoon delays a ship or a longshoreman strike in one of a dozen cities ties up the inventory of a vital component you end up missing a christmas release ...

Corning, makers of Gorilla glass, moved their plant to next door to Foxconn because it takes 6 weeks to ship from New York state, which means they have to over produce to handle any unforseen increase in orders and pay for the 6weeks of inventory sitting in a container. They also have to tell their customer's design guru to lock out any design changes 6 weeks earlier than a local competitor.

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Re: Supply Chain is the Key

I was referring to air shipping chips, memory, etc, things that weight a few grams a piece and are higher value per gram, that is the main part of the components that are made overseas, save the screens.

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Assembled vs "Made In"

Actually, these seem to be mostly assembled in the marketed countries (USA, Wales, first-world-nation-of-your-choice), but the parts being assembled seem to still be mostly made in the usual countries by the usual suspects. Probably using the usual slave labour pool.

Clever marketing. Misleading as hell yet it still works, even with people who should know better.

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Re: Assembled vs "Made In"

Even if it is 'assembled in UK' it's a step in the right direction, I believe the Sony plant in Wales employs 30+ people for the RPi line.

However I think if you design & assemble a product in a country then it is fair to say it is manufactured/made in that country, where the bits come from is immaterial in today's world, the control of the design and the build quality is the key.

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Anonymous Coward

Re: Assembled vs "Made In"

I'm sorry, but assumptions that Salaries paid in Asian wafer fabs are "slave labour" are just wrong. From my experience they are as high as European and American ... certainly from technician level upwards. The cost of a wafer fab is in equipment primarily & we should rule out the slave labour argument as to why the Asians seem to be more capable at it than we are.....

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how accurate are these tear downs?

Anyone know?

Just curious.

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Re: how accurate are these tear downs?

Most of the components are standard and pricing is easily obtained on the internet. The plastic and metal parts of the shell are probably cheaper than the cost of tooling to make them and any rare(r) metal can be calculated at melt value.

As to whether or not the IHS guys have any industry experience or contacts, I would speculate so since they are the quoted source most encountered.

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Re: how accurate are these tear downs?

I remember reading the tear-down for the original iPhone. I had just worked on a commercial project at the time with significant numbers of processors, flash, etc. The prices that were quoted for exactly the same flash chips were way above what we were paying for them, and Apples quantities would've been MUCH higher.

So when I read the tear-downs, especially the ones saying that the devices are sold at a loss, I don't believe them in the slightest.

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Re: original iPhone

That was 6 years ago, around the time that memory prices were just about to free-fall, a difference in a couple months for quotes used to calculate could be multiples which would explain your experience. If Apple had signed a fixed price contract, it could very well have actually paid more than your firm, particularly since they would have ordered many months before the tear-down occurred. And a large order from Apple could not necessarily drive the price down as it may outstrip supply, something Apple has had issues with for other components - displays being a recent example.

Currently NAND pricing is 1/200th of that era, and processors are pretty cheap too, relatively speaking. At best the difference in speculated prices and what large orders go for would be less than 10% of the calculated cost. Smartphones are purported to be costing around 1/3 of retail price to have built.

As for devices at a loss, while you may well be correct (and I suspect you are), once you calculate non-manufacturing development costs, they are low-margin (kindles, nexus tablets, etc) at best, but also act as loss-leaders - much the way some grocery stores (North America) sell milk at a loss to get customers in the door - of the app and content stores.

Its not that I think what you have said is wrong, just simply that it can be true, just as current estimates are likely true +/- 10%. Regardless, thank you for making me look into this a little deeper. I learned quite a bit about hardware component development and its pricing history. Here is the most interesting link I found along the way:

http://blogs.hds.com/hu/2013/02/hdds-and-nand-flash-will-be-around-for-some-time.html

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Anonymous Coward

Re: how accurate are these tear downs?

I don't know how accurate the teardowns generally are but I know there's a world of difference between DigiKey (or Farnell etc) prices and the prices (and availability) applicable to a volume manufacturer like Apple. You want guaranteed first preference supply with stable prices on a long term contract, you may well have to pay for it. You may also get quantity discount. Works great when supply exceeds demand, but that isn't always the case. Been there seen that.

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Unhappy

"allows the company to customize handsets individually for each customer"

In this case, aren't the "customers" just the telcos? So AT&T/Verizon/T-Mobile crapware hardwired.

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Why not use slave labor?

The US prison system is full of workers who work for free. There's a widespread belief that prisoners only make license plates, but 100% of the US army's protective vests, belts and helmets are made by unpaid prisoners, as is 40% of all white goods. See e.g. http://mentalfloss.com/article/51037/11-products-you-might-not-realize-were-made-prisoners for a list of prison-made goods.

Unpaid labor must surely be even cheaper than Chinese or Indian labor.

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Re: Why not use slave labor?

Prison labor is a highly regulated thing. It is illegal to just throw prisoners at profit making operations.. While not a bad idea on paper there is a loooong history of prisoners being taken advantage of. I think it has a lot to do with the fact basically no one in prison, on either side of the bars, are "nice" people. In most States and under most Federal rules the end product has to be in the interest of society as a whole. The prisoners aren't unpaid, they do receive a wage of which most of is applied to any fines they owe.

The biggest problem with prison labor is that only a very small portion of the population can be trusted enough to have tools of any kind or access to parts which could be used as a weapon, traded or sold internally or possibly used in an escape attempt. Needless to say, the trust level inside prison is fairly low... In some prisons even the 'trusted' inmates who mop the floors have the mop chained to the mop bucket to prevent them from beating people with it.

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Re: Why not use slave labor?

There is also a little problem with QC and worker motivation - would you trust a parachute made by workers who wanted you dead?

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Happy

Re: Why not use slave labor?

Funny story about prison manufactured goods. My friend owns a mandolin made in Kentucky in the 1950's, complete with "Proudly handcrafted by inmate #xxxxx - A Project by The Kentucky Department of Corrections" paper label inside. A couple years ago the label became loose and fell out.

Written in pencil on the back it says "I am being held against my will near Boling Green, KY. Please send help, the food is terrible."

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Re: Why not use slave labor?

> Unpaid labor must surely be even cheaper than Chinese or Indian labor.

Not if its Chinese prison labour.

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Anonymous Coward

Re: Why not use slave labor?

"The biggest problem with prison labor is that only a very small portion of the population can be trusted enough to have tools of any kind or access to parts which could be used as a weapon, traded or sold internally or possibly used in an escape attempt. Needless to say, the trust level inside prison is fairly low... In some prisons even the 'trusted' inmates who mop the floors have the mop chained to the mop bucket to prevent them from beating people with it."

Sounds like my previous job.

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Stop

Re: Why not use slave labor?

"The US prison system is full of workers who work for free..."
That's a good looking chip you have on your shoulder there. You forgot to mention the free rent. Oh, and free food. Don't suppose they pay much in the way for lighting, heating, water, sewerage or other utilities either. Oh and the security probably doesn't come cheap. Let's also not forget that they are "paying their debt to society" either.

I'm sorry, but exactly what is it you want? Ciminals can do whatever they want, at whatever cost to others or society, and then IF caught and IF eventually found guilty after a costly investigation and trial - they get free bed and breakfast for a while and put their feet up watching daytime TV? And all this is paid for by the tax payers, who also happen to be the victims? Cry me a river.

If there are jobs that no-one else will do, and are a benefit to society, then put them to work.

*Obviously this is over-generalising and their are people who should never be anywhere near a prison because they really have done nothing wrong, but I was generalising about the others.

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Re: Why not use slave labor?

> Not if its Chinese prison labour.

Good point. Clearly the US need to upsize its prison population and downsize facilities, food, and guards if it wants to stay competitive in the cut-throat captive labor market and avoid outsourcing of strategic slave labor potential to the BRIC countries.

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Re: Why not use slave labor?

> It is illegal to just throw prisoners at profit making operations.

In theory, maybe. In practice it's mainly matter of being the lowest bidder.

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Re: Why not use slave labor?

My point clearly is that the US is using slave labor to lower the cost of production of a wide range of products. The US military is without a doubt saving hundreds if not billions of dollars per year on the fact that their helmets, vests, belts, canteens, and other knick-knacks are made by unpaid labor. The commercial companies selling fridges, stoves and assorted other products are also making money from the cheapest possible labor.

These are all products which could be produced by civilian, paid, labor, and so using slave labor like this _reduces_ the number of manufacturing jobs in the USA. That's the problem: it is good for the companies (which get a higher profit margin), but bad for the US.

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Make it in America

There is an excellent book by Andrew Liveris, a chairman of the Dow Chemical Company, on the economics of manufacturing around the world titled "Make it in America". It covers why companies locate facilities in Asia, India and other 3rd world countries. It is not due to lower labor costs as many people think. The same arguments he uses on why the US government is chasing away business could also apply to the UK and most of Europe. The book is out as a paperback. I bought the audio version (not through the bastards at Audible) to listen to while driving.

I think that using prisoners to manufacture specialty goods that are used by government is a good idea. Taxes are used to house them and recouping some of that is not a bad thing. I do not support using prison labor by private companies to gain a price advantage over their competition. Private companies should have to pay competitive labor rates to use prisoners as a labor force. Prisoners can earn a small amount of money that can be used for snacks and smokes with a majority of the earned income to be directed to paying fines associated with their conviction and also an enforced savings account that can be used when they are released to re-establish themselves into society.

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Anonymous Coward

Re: Make it in America

Except of course, the prison are private corporations receiving tax breaks, so all profits end up in the bank accounts of the prison CEOs.

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Trollface

user choice

This is great for user choice.

Having a made-in-USA phone allows me to choose to have my entire private life surveilled by the NSA, rather than by the NSA and the PLA.

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Angel

I'm not surprised . . .

Remember when that sweat shop collapsed in Bangladesh? It took the journaille a couple of days to figure out it was my fault. Had I paid 10.01 instead of 9.99 the company would have been able to double the pay of the workers and make a safe working environment. A lie of course, that 2 cents never would have found its way to the slaves.

But it did prove the low impact of labor cost on consumer price. The truth is between the li(n)es.

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Coat

"giving the handset the ability to listen in on its surroundings"

Wondeful, the new NSA phone is now available !

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Better than "Designed in California" but "Made in China"

At least it is "Made in the USA" which really means "Assembled in USA with American Made and Foreign Parts." It does add jobs to the US economy and gives people manufacturing jobs. New Balance makes sneakers in Maine where I live but many of the pieces come from overseas. The law says that they can be called "Made in the USA" even though they have foreign parts in them. Better than Apple's "Designed in California by Apple" but "Made in China."

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Re: Better than "Designed in California" but "Made in China"

I agree - given that Android and WP are from US companies, most smartphones could be said to be "Designed in the USA" anyway.

What completely loses me though is them running the "Designed in California" on UK TV - why should most UK viewers favour a US product over an Asian one, I wonder (given that's where most the competing electronics companies are - or where they want us to think they're "designed"). In the US, it's appealing to protectionism, but to the UK, it's appealing to racism.

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Anonymous Coward

Repaired.

"The Moto X carries three always-on Wolfson microphones that constantly listen for the words "OK Google Now," to turn on a "Touchless Control" system, waking up the handset for voice commands and searching via Google Now. Apple users can think twice about how innovative Apple is and maybe just maybe make them realise that Apple marketing made them buy their tat"

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I am currently in need of a tablet. It will not be this. No SD expantion not even consider.

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Anonymous Coward

Robots do much of the work anyway.

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# Robots do much of the work anyway. #

Which is why differences in labor rates are far less of a factor. Tax, land, environmental laws and other inducements for corporations have a far larger effect on where companies locate facilities.

For at least some time in the US, the restriction on the nm scale of chip production restricted US fabs from shipping products overseas without special licenses. No fabs were built in the US since technology had progressed to much smaller scaled processes and a plant built in Singapore would have no such restrictions. There was also no issue with importing the completed chips into the US. The national security minders are not very good at keeping up with the state of the art and changing laws to match reality. No company is going to build a multi-billion dollar factory and hope that when it's done the laws will have been updated and they can ship product. That's too risky for a CEO to take a chance on.

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