Apple’s dependence on China is down to 36%, but the iPhone problem

Never has Apple’s dependence on China come into greater focus than now, where COVID-19-related downtime at its largest iPhone assembly plant is costing the company an estimated $1 billion a week.

A new report says the company’s efforts to diversify production continued to make progress, but iPhone production still relies heavily on China…


We’ve warned for many years about the need and difficulty of reducing Apple’s dependence on China, but the pandemic has made clear the dangers of the company having most of its manufacturing eggs in one basket.

While Apple expands production in other countries, recent estimates suggest that 95% of all iPhone supply still comes from China — and about 80% of all iPhones are made in a single factory in Zhengzhou, also known as iPhone City.

The massive outage at that factory has reduced iPhone production to less than 20% of planned production. One estimate put the lost production at more than 20 million units. The worst of all was the iPhone 14 Pro, where the gap between supply and demand was so great that it became impossible to guarantee delivery in time for Christmas even for orders placed in mid-November. This is estimated to cost Apple $1 billion per week in lost iPhone revenue.

Apple’s dependence on China has decreased

Apple has been diversifying its supply chain for many years, with assembly plants in India, Vietnam, Indonesia and elsewhere. Reuters It is noteworthy that the company has so far succeeded in reducing the percentage of production sites in China from 44-47% in 2019 to 36% in 2021.

The data shows how a diversification drive by Apple and its suppliers, with investments in India and Vietnam and increased purchases from Taiwan, the US and elsewhere, is reshaping the global supply structure, even though analysts and academics say it will remain highly exposed to China. for several years to come.

“The Chinese supply chain is not going to evaporate overnight,” said Eli Friedman, an assistant professor at Cornell University who studies labor in China. “Decoupling is not realistic for these companies right now,” he said, though he expected diversification to accelerate.

But the iPhone is still dependent on China

However, the iPhone in particular is still very dependent on China, and Apple’s plans are still relatively modest given the scale of the stakes.

JPMorgan expects Apple to move about 5% of iPhone 14 production to India from late this year and to manufacture one in four iPhones in India by 2025. […]

However, Apple’s supplier data through 2021 doesn’t show any sites yet that stand out as big gains to catch up with China’s decline, according to a Reuters analysis. […]

“Vietnam and India are not China. They cannot produce on this scale, with quality and on time, with the reliability of infrastructure,” said Friedman of Cornell University.

In addition to the unrest and political risks, recent protests at Foxconn’s Zhengzhou factory have highlighted poor working conditions during the shutdowns. With human rights activists increasingly concerned about the human cost of Chinese manufacturing, Apple is now facing increasing pressure from investors to address the problems.

“The important thing is that the company carries out these requests in a way that respects people’s rights,” said Pia Gisgaard, head of sustainability and governance at Swedbank Robor, which owns $1.3 billion in Apple stock as of the end of September, according to Refinitiv data. .

Photo: Jerry Wang/Unsplash

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