Apple likely to move 15%-30% of production to locations outside of China

According to Apple, the risks of depending too heavily on manufacturing in China are rising and are far too great. Regardless of how the U.S.-China trade is resolved, the production shift will take place.

In a significant development, the Nikkei Asian Review has reported that Apple Inc has asked its major suppliers to assess the cost implications of moving 15%-30% of their production capacity to other locations in Southeast Asia, outside China.

The development marks Apple’s preparations to restructure its supply chain.

According to Nikkei’s report, which cites multiple sources, even if the U.S.-China trade war was to come to an end, it would not lead to a change in its decision.

According to Apple, the risks of depending too heavily on manufacturing in China are rising and are far too great.

Earlier this month, credit rating agency Fitch stated, it views Apple, Dell Technologies Inc and HP Inc as potential blacklist candidates if China were to blacklists U.S. companies in retaliation for restrictions on Huawei.

Key iPhone assemblers including, Foxconn, Wistron Corp, Pegatron Corp, iPad maker Compal Electronics Inc, major MacBook maker Quanta Computer Inc, and AirPods makers Inventec Corp, Luxshare-ICT and Goertek have been asked to evaluate options outside of China.

Countries being considered include India, Vietnam, Indonesia and Malaysia and even Mexico.

India and Vietnam are among the favorites for smartphones, said Nikkei citing sources who prefer the cover of anonymity since the discussions are private.

According to analysts at Wedbush Securities, in a best case scenario Apple is likely to move 5% to 7% of its iPhone production to India in the next 12 to 18 months.

Given the complexity and logistics involved, it would take at least 2 to 3 years for Apple manufacturers to move 15% of iPhone production to locations outside China.

“We believe this is all a poker game and Apple will not diversify production out of China overnight and certainly a long-term US/China trade deal is key for Cook & Co to sleep well at night,” said analysts at Wedbush Securities.

According to the Nikkei report, a group of more than 30 people from Apple’s capital expense studies team have been negotiating production plans with suppliers and governments over monetary incentives that could be offered to lure Apple manufacturing.

A deadline has not been set for the suppliers to finalize their business proposals.

Apple and Foxconn did not respond to requests for comment.

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