An iPhone’s journey, from the factory floor to the retail store
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The iPhone is Apple’s most profitable and best-selling product. More than 1 billion have been sold. About half of all iPhones now are made in a huge manufacturing facility in the central Chinese city of Zhengzhou. This is the story of how an iPhone made there can end up in your hands.
Apple buys many of the components for iPhones — like the memory chip, the modem, the camera module, the microphone and the touch-screen controller — from more than 200 suppliers around the world. Foxconn, the Taiwanese company that runs the Zhengzhou facility, even produces some smaller parts, such as metal casings.
Apple orders many of the components from global suppliers and then sells them, en masse, to one of its contract manufacturers in China. In Zhengzhou, that means Foxconn.
Foxconn’s facilities in Zhengzhou cover 2.2 square miles and can employ up to 350,000 workers, many of whom earn about $1.90 an hour. The operation does final assembly, testing and packaging.
There are 94 production lines at the Zhengzhou manufacturing site, and it takes about 400 steps to assemble the iPhone, including polishing, soldering, drilling and fitting screws. The facility can produce 500,000 iPhones a day, or roughly 350 a minute. After the iPhone rolls off the assembly line, it is placed in a sleek white fiberboard box, wrapped and put on a wooden pallet, and then wheeled out to waiting trucks.
The newly assembled iPhone is transported a few hundred yards beyond the factory gate, where China built a large customs facility. The customs operation sits in a bonded zone, which allows Apple to sell the iPhones more easily to Chinese consumers.
As the final point of assembly for the iPhone, China also serves as a starting point for Apple’s global tax strategy. In Zhengzhou, often in the customs facility, Foxconn sells the completed iPhones to Apple, which in turn resells them to Apple affiliates around the world.
The process, most of which takes place electronically, allows Apple to assign a portion of its profits to an affiliate in Ireland, a tax-advantageous locale. The system is not unique to China.
IPhones bound for the United States and other parts of the world leave customs by truck and are transported three miles to the Zhengzhou airport. The airport has been significantly expanded in recent years, as production of the iPhone has increased.
“Foxconn’s facilities in Zhengzhou cover 2.2 square miles and can employ up to 350,000 workers, many of whom earn about $1.90 an hour.”
Some years ago, personal computers that were made in China were transported to the United States by container ship, with a trip lasting about a month. Smartphones are small enough to be shipped by plane in huge quantities — and cost-effectively. A single wide-body Boeing 747 can easily carry 150,000 iPhones tucked into its aluminum canisters.
From Zhengzhou, UPS, FedEx and other freight carriers typically fly U.S.-bound iPhones to Anchorage, Alaska. There, they refuel, before going on to Louisville, Ky., a major logistics hub, or other points.
For an iPhone headed for the China market, customs officials use an electronic system to virtually stamp the goods as “exports” and then restamp them as “imports.” In Zhengzhou, the process happens in the same customs facility just outside the factory.
Once the products are declared an import, customs can collect a 17 percent value-added tax, a kind of national tax, based on the import price. Afterward, the goods are approved for transport around China. Domestic-bound iPhones are typically loaded onto a large truck and taken on an 18-hour drive from Zhengzhou to Shanghai, in eastern China, where Apple has set up its national distribution center. A single tractor-trailer holds up to 36,000 iPhones. Because the vehicles have about $27 million worth of freight on board, they are equipped with cameras and sometimes accompanied by armed security guards.
After the iPhone leaves the Foxconn factory in Zhengzhou, it takes two days, on average, to get to a store in Shanghai, a 590-mile trip. It takes three days, on average, to get to a store in San Francisco, some 6,300 miles away.
IPhones can sell for nearly 20 percent more in China than in the United States.
Chinese customers pay much higher prices, because of currency fluctuations and the country’s hefty value-added tax.
A 32-gigabyte iPhone 7 sells for about $776 at the Apple Store in Shanghai. In New York, it goes for $649.
Questions & Answers
Q.How does Apple acquire the components for its iPhones?
How does Apple acquire the components for its iPhones?
Apple buys many components, such as memory chips and cameras, from over 200 global suppliers. It then sells these components en masse to its contract manufacturers in China, like Foxconn in Zhengzhou.
Q.What is the daily production capacity of the Zhengzhou facility for iPhones?
What is the daily production capacity of the Zhengzhou facility for iPhones?
The Zhengzhou facility can produce 500,000 iPhones per day. This equates to approximately 350 iPhones every minute, after undergoing around 400 assembly steps.
Q.How does Apple utilise the customs facility in Zhengzhou for its global tax strategy?
How does Apple utilise the customs facility in Zhengzhou for its global tax strategy?
Foxconn sells completed iPhones to Apple within the customs facility. Apple then resells them to its global affiliates, allowing a portion of profits to be assigned to an Irish affiliate for tax benefits.
Q.Why do iPhones sell for a higher price in China compared to the United States?
Why do iPhones sell for a higher price in China compared to the United States?
Chinese customers face higher prices due to currency fluctuations and the country's substantial 17 percent value-added tax. This tax is collected by customs based on the import price.
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