apple moving away from China

There have been multiple reports that Apple (NYSE: AAPL) is planning to shift production from China to other countries like India and Vietnam. Most analysts believe that’s easier said than done for the iPhone maker.

While there were already murmurs about Apple’s concentrated supply chain, the recent troubles at Foxconn’s factory in Zhengzhou, which assembles most of the iPhones globally, have crept in a sense of urgency.

To be sure, Apple’s presence in China has been mutually rewarding. The country emerged as a low-cost and efficient production hub. At the same time, the presence of global giants like Apple helped the Chinese economy grow. The country is now a major market for several US companies including Apple and Nike.

Despite concerns over China’s human right record, US companies strengthened their presence in the world’s second-largest economy. However, the COVID-19 pandemic and more importantly China’s response to it has made several companies rethink their strategies.

The recent protests in China including at Foxconn’s factory in Zhengzhou have also raised concerns about China’s status as a stable and efficient production hub.

Apple is Considering Diversifying its Supply Chain

Citing people who are aware of Apple’s supply chain plans, the Wall Street Journal reported that the company is looking to diversify its supply chain in two ways. Firstly, AAPL is looking to have more assemblers in China and reduce the reliance on Foxconn. Wingtech Technology and Luxshare Precision Industry are among the companies which Apple is reportedly considering as partners.

Secondly, Apple is looking to move more production to Asian countries like India and Vietnam. Ming-chi Kuo, an analyst at TF International Securities believes that over the long-term Apple intends to assemble between 40-45% of its iPhones in India.

Some Indian media outlets reported that Tata, which is among the largest conglomerates in India, is considering buying Wistron’s plant in the country. Wistron is among the three Apple partners in India.

India is offering incentives to electronics manufacturers as the country seeks to capitalize on the “China plus one” sourcing strategy that many US companies are contemplating.

Indian stocks are also outperforming global markets this year and have hit a record high amid a strong domestic economy. We have a guide on how beginners can buy stocks in India with a regulated broker.

AAPL Supply Chain is Concentrated in China

Meanwhile, it won’t be easy for Apple to move production from China. Counterpoint Research, which estimates that at one point Foxconn’s factory in Zhengzhou was producing almost 85% of the iPhones, pointed to the multiple nuances.

Jeff Fieldhack, Counterpoint’s director of research said that Apple’s massive presence in China could be used as a bargaining chip amid the escalating tensions between the US and China.

The US imposed punitive tariffs on many Chinese products under former President Donald Trump. Amid the rising troubles between US and China, there have been calls to boycott Apple products in China. However, Apple said in the past that the impact was minimal.

There are other reasons why it won’t be easy for Apple to shift production from China. Vietnam, for instance, is a much smaller economy with a small population as compared to China.

India does have a big working-age population but lacks skilled manufacturing workers. Also, it is still not an easy place to do business, especially for large-scale manufacturing projects. Several of the previously announced mega projects, including Foxconn’s mega investment, have failed to see the light of day.

Apple is Moving Production to India but It Won’t be Easy

That said, the country is taking multiple measures like investing in infrastructure and reforming its legal framework to increase its manufacturing footprint.

India-China relations nosedived after the clash at their contested borders in 2020. Since then, India is trying to reduce its reliance on imports from China. So far, they haven’t yielded fruit and the country’s trade deficit with China is at a record high.

Amid supply chain issues in China, Apple has increased iPhone production in India, including that of the latest iPhone 14. As the Indian economy grows, analysts expect iPhone sales in the country to grow sharply from the current low base.

AAPL Stock has Looked Weak Over the Last Month

While AAPL is still the best-performing FAANG stock of 2022, it has looked weak over the last month amid the supply chain woes. Foxconn has reportedly lost production to 6 million iPhone units due to the COVID-19 restrictions and the resultant unrest at the Zhengzhou plant. Notably, several buyers in the US were not able to buy iPhone 14 during the Cyber Week sale.

The production issues might hit Apple’s revenues in the December quarter. The slowdown in the Chinese economy, which has been aggravated due to the COVID-19 restrictions, is another challenge for Apple as the country is among its major markets.

While China is still officially targeting a GDP growth of 5.5% for 2022, it looks unlikely to reach anywhere near that level considering the growth in the first nine months of 2022.

Overall, Apple faces several headwinds amid the China troubles. Meanwhile, Warren Buffett seems unperturbed and added more AAPL shares in the first half of 2022. There is a guide on how beginners can buy Apple stock.

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