Apple is urging its contract manufacturers to expand production outside China as the company looks to reduce its dependence on the country following COVID-19 lockdowns and supply chain headwinds — reports The Wall Street Journal.
The Cupertino, California-based tech giant is eyeing India and Vietnam — both of which currently make small contributions to Apple’s global production — as possible options for expansion, people familiar with the discussions said.
Over 90% of Apple’s products, from iPhones to MacBooks and everything in between, are manufactured in China by contractors like Foxconn Technology Group and Quanta Computer.
Analysts have said for years that Apple’s heavy reliance on one country for manufacturing could endanger its supply chain The recent lockdowns in several parts of China, imposed due to the resurgence of COVID-19 in the country, demonstrated as much.
Apple’s largest iPhone factory, operated by Foxconn and located in Zhengzhou, China, faced a lockdown last month, while another one in Shenzhen was forced to suspend operations in March. The situation has also crimped the supply of other Apple products, with new MacBook Pro orders showing wait times of up to two months.
Apple has issued guidance for a $4-8 billion USD drop in revenue during the fiscal quarter ending June 26 amid production and supply chain woes.
India is a prime candidate for Apple considering how similar it is to China in terms of the quality and cost of labour. India is also offering significant government funding to tech companies in a move to encourage local manufacturing.
Foxconn and Wistron Corp. already have iPhone manufacturing plants in India. Apple in April started manufacturing the iPhone 13 in India, the first time a current-generation iPhone has been assembled in the country. India accounted for 3.1% of the world’s iPhone production last year and is expected to hit 6-7% this year.
However, some of Apple’s suppliers are hesitant to set up shop in India, given the strained political relations between the country and China, where most of the components needed to assemble Apple products have to be shipped from.
Apple’s China-based manufacturing contractors are therefore keener on installing production capacity in Vietnam and other Southeast Asian countries. Vietnam is where Luxshare Precision Industry Co. manufactures Apple’s AirPods.
Apple has told its manufacturing partners that it wants them to consider locations outside China in the new product introduction (NPI) stage of mass production. Doing so can be highly resource intensive, and setting up a plant in a new country also requires manufacturers to establish a supply line for equipment and components from scratch.
That said, however, contractors who want to keep Apple’s business will find ways to get it done.
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As well regarded Cook is as a master at infrastructure and logistics, he’s has shown a very puzzling unwillingness to see the writing on the wall with China. Even before covid, they were entering a demographic implosion due to 1 child that left them with too few people to continue to grow economically. Labour costs has risen over the last 20 years by 15x, which is faster than anywhere else in the world and they are completely at the mercy of international supply chains, which have been seriously interrupted by covid. The real estate collapse will also drive a lot of social unrest and the Uighur issue is going to continue to be a problem. How Cook could have missed what’s coming until now is is odd.
Scrambling to move out now is going to be very expensive. They might be successful at it, but they going to pay through the nose to do it well.