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szdaily -> Business/Markets -> 
Apple data show deepening dependence on China
    2019-08-30  08:53    Shenzhen Daily

TAPPING factories in Brazil and India has not lessened Apple Inc.’s dependence on China, the company’s supply chain data show, raising the stakes for the iPhone maker as U.S. President Donald Trump wages a trade war and promises more tariffs.

Apple faces levies of 15 percent imposed by Trump’s administration on major products made in China such as smartwatches and wireless headphones Sept. 1, with a tariff on its biggest seller, the iPhone, to take effect Dec. 15.

Few American firms are as tightly bound to China as Apple. Contract factories owned by Foxconn, Pegatron Corp., Wistron Corp. and others employ hundreds of thousands of workers to assemble Apple devices.

In recent years, Apple’s contract manufacturers have expanded into other countries. India, for example, had no Apple contract manufacturer locations in 2015 but expanded to three assembly facilities by 2019, including a factory owned by Foxconn, which plans to make models from the iPhone X family of devices.

Apple taps the India operations to avoid steep import duties on iPhones in one of the last fast-growing mobile phone markets on the planet, similar to Apple and Foxconn’s move to open a production facility in Brazil in 2011.

But the factories outside China are smaller and, in the case of India and Brazil, Apple only uses them to meet domestic demand. Apple’s contract factories inside China, meanwhile, have added far more locations than outside, with Foxconn alone expanding from 19 locations in 2015 to 29 in 2019 and Pegatron going from eight to 12, according to Apple’s data. The new locations come as Apple has added watches, smart speakers and wireless headphones to its product lineup.

And beyond the contract factories, the rest of Apple’s suppliers — the companies that sell it chips, glass, aluminum casings, cables, circuit boards and much more — became more concentrated in China. Among all supplier locations, 44.9 percent were in China in 2015, a proportion that rose to 47.6 percent by 2019, the data showed.

Apple faces hurdles in diversifying beyond China, where the clustering of multiple suppliers allows it to make hundreds of millions of devices per year while holding only a few days’ worth of inventory, which is critical to the free cash flow Apple investors prize.

Other phone makers ship far fewer units and have more flexibility. Alphabet Inc.’s Google is shifting its Pixel smartphone production to Vietnam from China starting this year as it builds a cheap supply chain in Southeast Asia, the Nikkei business daily reported Wednesday.

But Apple’s scale works against it because few other nations have work forces as large as China. Factories require highly skilled engineers to design and troubleshoot custom tools and processes. Vietnam, where Apple has manufactured accessories for years, has a population less than one-tenth the size of China.

Even if Apple can make devices in India or Vietnam, the volumes would be small compared with Apple’s overall needs.

Outside of China, “there few places in the world that have the infrastructure to produce 600,000 phones a day,” said Dave Evans, CEO of San Francisco supply chain firm Fictiv.

Apple has so far been spared tariffs on major products, winning a reprieve last year on many wireless devices. And Apple CEO Tim Cook has cultivated a close relationship with Trump over dinners and private meetings at the White House.

Apple has told trade officials that it generally believes tariffs will result in higher prices for U.S. consumers but has not said whether it plans to pass tariffs onto customers by raising prices.

For electronics products, where the circuit board is made can sometimes determine the product’s country of origin, said George R. Tuttle III, a customs attorney. (SD-Agencies)

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