Apple’s global supply chain management strategy appears to be shifting quickly to reduce its dependence on China for iPhone and MacBook product assembly.
The move is part of a larger trend toward deglobalization, or reducing interdependence between business units distributed throughout the world, according to Ming-Chi Kuo, an Apple analyst with financial services firm TF International Securities.
Over the next three to five years, at least the for the US market, from 25% to 30% of global iPhone shipments can be supplied by assembly sites located outside of China to reduce potential impacts from political risks (such as US-China tariffs), Kuo wrote in a tweet last month. Longer term, Kuo said, China will likely be the major assembly point for its own in-country Apple product sales, but not for global product supplies.
MacBooks, which are currently assembled in China, will most likely shift to Thailand, Kuo wrote.
“According to Apple’s plan, the Indian company Tata Group may cooperate with Pegatron or Wistron in the future to develop the iPhone assembly business,” Kuo said. Pegatron and Wistron are two Apple contract manufacturers in India.
Currently, more than 80% of the iPhones made in India by Foxconn are only for domestic demand, Kuo noted.
According to a report in the Wall Street Journal this week, Apple has been telling its parts suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, to reduce its dependence on Taiwanese assemblers led by Technology Group.
“I’m not surprised by this at all,” said Jack Gold, principal analyst with research firm J. Gold Associates. “There are multiple things going on here with Apple manufacturing. First, of course, is the geopolitical challenges that would cause a shutdown if for some reason Taiwan was invaded. I’m not suggesting it will happen, but prudent planning is a good strategy.”
Secondly, the global pandemic has caused Apple to rethink its plans as COVID-19-related shutdowns have affected hardware production.
Last month, Apple’s largest assembly facility in Zhengzhou, China, was temporarily shut down due to the government’s strict COVID-19 lockdown policies; citizen protests in “iPhone City” in Zhengzhou, resulted in an easing of the lockdown restrictions, but the incident likely spurred Apple to quicken the pace to move more operations out of country. The lockdown was reported to have cost Apple up to $1 billion a week.
The Foxconn-run assembly plants in Zhengzhou are operated by as many as 300,000 workers who made up to 85% of Apple’s iPhone Pro line of smartphones, according to Counterpoint Research.
Earlier this year, in March, Foxconn paused its operations in Shenzhen, a Chinese manufacturing hub, after an uptick in COVID-19 cases led the city to lock down.
“The Foxconn shutdown enforced by the government hit manufacturing of Apple products hard,” Gold said. “So diversifying manufacturing locations means less likelihood of having one geographic location shutting down most or all of your manufacturing capacity.”
In addition, countries such as India and Vietnam are fast growing markets that have relatively low-cost manufacturing locations, and having some local manufacturing there is more advantageous politically, Gold noted.
Apple’s shift away from assembling products in China won’t likely benefit US manufacturers because their costs are simply too high, and that would reduce profit margins on devices substantially.
“Also, most of the part supply is centered in the Far East (e.g., chips, physical components, boards, etc.),” Gold added. “So, it’s better to manufacture end products closer to your supply sources than shipping them to a far-away location.”
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