Apple‘s Suppliers’ $16 Billion Investment to Move from China
The shift of Apple‘s suppliers, including Foxconn, from China has been fueled by a $16 billion investment since 2018.
This move is part of a strategic plan to diversify manufacturing locations and reduce dependence on China. Amid continued US/China trade tensions and production delays due to COVID measures, Apple and its suppliers are actively reshoring to mitigate business risks.
Drivers for Diversification
The sharp focus on reducing over-reliance on china stemmed from the US/china trade tensions and production disruptions.
Issues such as component supply, labor availability, and government-mandated movement restrictions prompted a need for diversification.
Implications on Apple‘s Earnings
TD Cowen’s research estimates that Apple‘s revenue was impacted by over $30 billion due to production disruptions from China.
The loss of earnings due to China has propelled Apple and its 188 major suppliers to invest in reshoring their manufacturing operations.
Challenges in Reshoring
While reshoring incurs higher costs in the near term, the long-term benefits in product costs are anticipated once the new Manufacturing locations are fully operational.
Analysts anticipate that the reshoring process will take several years before Apple can fully realize the benefits in operating margins.
Supplier Investments and Geographic Diversification
Apple‘s suppliers have invested approximately $16 billion in diversifying production assets away from China to countries such as India, Mexico, the US, and Vietnam.
The aim is to reduce the impact of future production disruptions by leveraging diversified geographic and labor supply bases.
Apple‘s Manufacturing Hub in India
Despite the majority of iPhone production remaining in china, there are new investments in India that can potentially create a significant manufacturing hub, especially for exports to the US.
The shift to india‘s local production not only reduces distribution logistics costs but also enhances product affordability due to lower import tariffs.
Limits and Opportunities in Reshoring
While Mac and iPad production have shown progress in diversifying away from china, the supply chain fieldwork suggests that there is still a need for additional capacity to meet the US consumption requirements.
Even with these developments, Apple will require years to fully reshore its production capacities and diversify its supply chain away from China.
Challenges and Considerations for Reshoring
The analysts from TD Cowen emphasize that reshoring will take time and concerted efforts, especially in establishing new Manufacturing plants and organizing the entire supply chain.
Partial reshoring may occur if critical components cannot be produced away from the targeted region, indicating the complexity involved in the diversification process.
Apple‘s Response and Future Directions
Apple has not officially commented on the specific report but has acknowledged the production challenges faced during the release of the iPhone 14 range.
The company’s strategies to address its over-reliance on china will likely shape its future manufacturing and supply chain decisions.
Source: appleinsider
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