Apple’s close ties to China will stifle iPhone production shift to India and Vietnam

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Apple made waves internationally this week by confirming plans to assemble some of the first iPhone 14s in India. Investors, analysts and geopolitical experts interpreted the development as a sign of Apple’s intentions to reduce its dependence on China, where local companies exclusively produced the first wave of iPhones.

Yet all of Apple’s decision coverage lacked a key data point: exactly how many iPhone 14s will be made in India. The answer is “not that much,” according to a sobering new analysis from Bloomberg Intelligence.

Apple would need eight years to move just 10% of its manufacturing capacity out of China, a practically glacial pace in the fast-paced tech world, according to Bloomberg Intelligence’s estimate. Currently, Chinese contractors produce more than 90% of Apple products, including about 98% of iPhones.

The analysis throws cold water on a convenient narrative emerging about the rifts between Apple and China.

Over the past few years, several news outlets have documented Apple’s desire to wean itself off its Chinese partners.

The urge to diversify is said to follow frustration with the Chinese government’s strict COVID lockdown policies, which have hurt short-term production and heightened long-term concerns about the autocratic regime’s influence on the economy. companies. Apple would also like to hedge its bets against possible geopolitical crises between the United States and China, which is engaged in a low-key economic Cold War.

These reports are valid. In addition to this week’s iPhone-India shift, Apple has moved some production of iPads, Watches, AirPods and HomePods to Vietnam over the past three years. Apple hasn’t been shy about praising its many Asian allies either.

Yet media coverage has been remarkably light on specifics when it comes to units and percentages. This is not a criticism of the stubborn journalists who follow Apple, a notoriously secretive company. Rather, it’s an acknowledgment that we know very little about the extent of Apple’s divestment from China, or how to interpret it.

Apple’s recent addition to India and Vietnam might be nothing more than an expensive pun. Apple could benefit from a small show of independence from China, using it as leverage to remind government officials of the mutual benefits of their stable and codependent relationship. After all, Apple got cheap labor and high-quality production from Chinese workers, while China reaped hundreds of billions of dollars in economic stimulus from Apple’s presence. China also accounted for $68 billion, or nearly 20%, of Apple’s fiscal 2021 revenue.

Alternatively, the Bloomberg Intelligence report could be a resounding siren about Apple’s overreliance on Chinese supply chains and lack of urgency in diversifying production. In the past eight years alone, the US approach to China has shifted from semi-dovish to moderately hawkish, upending a period of relative calm between the two nations. If that doesn’t move soon, virtually all of Apple’s production operations could be caught in the middle of a messy fight between the two nations.

Then again, maybe Apple is actually determined to break free from China. While Bloomberg Intelligence is pessimistic about Apple’s ability to quickly sever ties, JP Morgan analysts are more optimistic about this prospect. They estimated last week that Apple could produce 25% of its products outside of China by 2025, up from 5% today, with India serving as a key outpost.

Or maybe there is some kernel of truth in all three scenarios. Apple CEO Tim Cook has been open about his desire to establish multiple production locations, but he has hardly blown up China or unveiled grand plans to ditch the republic. As the New York Times reported earlier this month, Apple was “careful not to antagonize China’s ruling Communist Party” while executing plans to move the assembly.

Whatever Apple’s intentions, Bloomberg Intelligence’s analysis reflects the tech titan’s long road to diversification. Apple has spent more than 20 years investing in production in China. It could take that long, if not longer, to relax.

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Jacob Charpentier

NEW

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FOOD FOR THOUGHT

Wake up to reality? As the feel-good vibes from last week’s Dreamforce 2022 fade away, investors are wondering if the growth fest is over for the event’s lead sponsor. Protocol reported on Friday that some Wall Street analysts were concerned Selling power, wondering if the enterprise software company has gone from a growing giant to a mature entity. The questions coincide with a slowdown in the enterprise software market, as well as a maturation of flagship Salesforce products.

From article:

Wall Street is divided. Some will simply want to see operational improvement and share buybacks. This is why the announcement of an operating margin target of 25% by 2026 was lukewarm on the stock market. Notably, that margin target would include all acquisitions, per CFO Amy Weaver. And last August, it published its first buyback program.

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BEFORE YOU LEAVE

A few snipers. One of the most bizarre episodes in the tech industry finally resulted in a jail sentence on Thursday. Two former eBay executives were sentenced to seven years combined behind bars for their role in a stalking campaign that involved sending cockroaches, spiders and threatening messages to the editors of an online newsletter, the Associated Press reported. James Baugh, a former senior director of safety and security at eBay, was sentenced to five years in prison for his role in the terror of a Boston-area couple who covered negative news about the company. David Harville, a former director of global resilience at eBay, spent two years in a federal penitentiary. Prosecutors said Baugh orchestrated the scheme, while Harville helped carry out the campaign.

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