Apple Explores Options To Pull Manufacturing Out Of China, Report Claims

A week after the first reports emerged about Apple exploring its manufacturing options in light of escalating U.S. tensions with China that are impacting the technology industry, the Nikkei Asian Review has reported that Apple has now moved a significant stage further. The U.S. tech giant has reportedly “asked its major suppliers to evaluate the cost implications of shifting 15% to 30% of their production capacity from China to Southeast Asia as it prepares for a fundamental restructuring of its supply chain.”

The original news very much focused on the source of iPhones for the U.S. market, with Foxconn assuring anyone concerned that the company has more than enough capacity to make all U.S.-bound iPhones outside of China if required. “Twenty-five percent of our production capacity is outside of China,” a company spokesperson told investors, “and we can help Apple respond to its needs in the US market.”

This news goes way beyond tidying up its U.S. supply chain. Apple employs more than 10,000 people directly in China, and millions of indirect jobs rely on their stellar production volumes and buoyant app ecosystem. The relationship between Apple and Foxconn is very close, and Apple is directly involved in a wide range of decisions about the manufacturing setup and processes on the ground in China.

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China’s flexible and highly-scalable manufacturing base has underpinned Apple’s phenomenal growth rate and has catapulted Foxconn to becoming the largest contract electronics manufacturer on the planet. It was speculation about cut Foxconn production lines that first signaled a slowdown in Huawei smartphone shipments.

Foxconn is not the only company set to be affected by any Apple move. A large number of component manufacturers and product assemblers may also see business shift to elsewhere in Asia and beyond - with India and Mexico other alternatives. “We need to know where those big assemblers are heading to so that we can initiate our plan too,” one Apple component supplier told Nikkei.

China is currently Apple’s largest international market and the manufacturing base for more than 90% of its most popular lines. Apple is less directly impacted by China’s backlash against the U.S. blacklisting of Huawei given that it falls outside the Android ecosystem. But cyber assurance legislation and export controls could well impact the company, even if China’s version of the entity list does not.

Apple’s share price and performance have been hit in the past through its exposure to the Chinese consumer market, and as that market consolidates behind its domestic champions that situation could intensify. In comments this week, Huawei has made its intentions clear to build up its already dominant share of the Chinese market as a hedge against the impact of U.S. restrictions.

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The tagline “designed by Apple in California, assembled in China,” which has become so familiar to us all could be about to change. And once any production shifts away from China it is unlikely to return. That means that even if there are trade talk compromises to come, it could be too late to return to where we were when this all started.

“Apple has not set a deadline for the suppliers to finalize their business proposals,” Nikkei reported. “Both sides are working together to identify the most favorable incentives on offer and to review business environments outside of China.”

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Apple declined to comment.

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