Apple's global supply chain management strategy appears to be changing rapidly to reduce its reliance on China for the assembly of iPhone and MacBook products.
The move is part of a broader trend of deglobalization, or less interdependence among business units spread across the globe, according to Ming-Chi Kuo, an Apple analyst at financial services firm TF International Securities.
Over the next three to five years, at least for the US market, 25-30% of global iPhone shipments may come from assembly sites outside of China to reduce potential risk impacts political (such as the US-China tariffs), Kuo wrote in a tweet last month. In the longer term, Kuo said, China is likely to be the main starting point for its own sales of Apple products in the country, but not for global product sourcing.
MacBooks, which are currently assembled in China, will likely move to Thailand, Kuo wrote.
"According to Apple's plan, India's Tata Group may cooperate with Pegatron or Wistron in the future to expand iPhone assembly business," Kuo said. Pegatron and Wistron are two Apple contractors in India.
Currently, more than 80 percent of iPhones made in India by Foxconn are for domestic demand only, Kuo noted.
According to a report this week in the Wall Street Journal, Apple has asked its parts suppliers to more actively plan the assembly of Apple products in other parts of Asia, particularly India and Vietnam, to reduce their reliance on Taiwanese assemblers led by Technology Group.
"This doesn't surprise me at all," said Jack Gold, principal analyst at research firm J. Gold Associates. “There are several things going on here with Apple manufacturing. First of all, of course, there are the geopolitical challenges that would trigger a lockdown if, for whatever reason, Taiwan were invaded. I'm not saying it will happen, but careful planning is a good strategy.
Second, the global pandemic caused Apple to reconsider its plans, as COVID-19-related shutdowns affected hardware production.
Last month, Apple's largest assembly plant in Zhengzhou, China, was temporarily closed due to the government's strict COVID-19 lockdown policies; Citizen protests in Zhengzhou's "iPhone City" led to an easing of lockdown restrictions, but the incident likely prompted Apple to quicken its pace to move more operations out of the country. The lockdown is said to have cost Apple up to $XNUMX billion a week.
The Foxconn-run assembly plants in Zhengzhou are operated by up to 300,000 workers who account for up to 85% of Apple's iPhone Pro lineup of smartphones, according to Counterpoint Research.
In early March this year, Foxconn suspended operations in Shenzhen, a Chinese manufacturing hub, after a spike in COVID-19 cases led the city into lockdown.
“The government-ordered closure of Foxconn has hit the manufacturing of Apple products hard,” Gold said. “Therefore, diversifying manufacturing sites means that a geographic location is less likely to shut down most or all of its manufacturing capacity.”
Also, countries like India and Vietnam are fast-growing markets that have relatively inexpensive manufacturing sites, and having local manufacturing there is more politically advantageous, Gold noted.
Apple's decision not to assemble products in China is unlikely to benefit US manufacturers, as their costs are simply too high, which would significantly reduce the profit margins of the devices.
“In addition, most of the parts sourcing is focused in the Far East (eg chips, hardware, boards, etc.),” Gold added. "Therefore, it is better to have finished products closer to their sources of supply than to ship them to a distant location."
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