21st Century Business Herald reporter Zhang Sai, male intern Yin Xinyu, Shanghai reporting
After announcing a high-profile increase in production in India a few years ago, Apple's supplier strategy has recently shifted again.
According to media reports cited by reference sources, Apple's shift to Indian production has not been smooth, and it has decided to transfer some of its production capacity back to China.
The report stated that last year, the Indian factory encountered difficulties in assembling the iPhone 15, resulting in returns and forced significant price reductions. Apple CEO Tim Cook himself also went to China to reorganize the supply chain. Based on this lesson, Apple has already transferred some of its production capacity back to its Chinese contract manufacturing plants this year. Major companies such as BYD and Luxshare Precision have joined the iPhone 16 supply chain and become Apple's latest contract manufacturing partners.
Based on Cook's frequent and public interactions with Chinese suppliers since the beginning of this year, the return of Apple's production capacity to China is not groundless.
From around 2020 to 2022, news of Apple's increased investment in India frequently appeared in the newspapers, causing market concerns about the domestic supply chain. 21st Century Business Herald reporters have also reported on the risks and transfer difficulties of Indian manufacturing. Only two years later, Apple's production capacity has returned, highlighting the importance of China's supply chain. Why can't Apple do without Chinese manufacturing? What are the practical obstacles encountered in its production in India? Can China's supply chain breathe a sigh of relief after the return of production capacity?
Made in India AB surface
Moving forward in time, due to the impact of trade frictions, Apple had long been rumored to transfer its production lines from China to Vietnam, India, and other places. In 2020, Apple had already manufactured the Apple iPhone 11 on its production line in India. In June 2020, Foxconn Chairman Liu Yangwei revealed at the shareholders' meeting that the investment focus would be on India.
In the following three years, the pandemic further accelerated the changes in the layout of the Apple industry chain. In April 2022, Cook stated during a conference call that due to chip supply shortages, international situations, and other factors, Apple is considering expanding its supply chain to regions such as the United States and Southeast Asia. In April 2023, Cook visited India and held talks with Indian Prime Minister Modi, hoping to expand production scale and smartphone sales in the country.
Apple has practical considerations for transferring production to India.
WitDisplay's chief analyst, Lin Zhi, told reporters, "The Indian market is indeed very large. In the long run, everyone wants to get a share of the demographic dividend and economic growth in Southeast Asia. In addition, due to the influence of geopolitics, shifting to Southeast Asia is also a trend." At the same time, manufacturing Apple phones in India can not only enjoy preferential policies, but also reduce import tariffs, thereby reducing production costs.
However, risks are hidden beneath the iceberg.
The previous report pointed out that Indian factories need to rely on a large number of imported parts from Chinese Mainland, and the quality and efficiency are affected; The yield rate of iPhone OEM in India (only about 50%) and hygiene management (excessive E. coli) still have problems. These two problems caused problems when products were shipped to Europe and Chinese Mainland, which affected the market sales.
The issue of Indian manufacturing has already been exposed.
The important iPhone supplier Wistron's withdrawal from the Indian market in 2023 is a signal. At that time, analysts pointed out that in addition to Wistron's own business adjustments, its exit was also related to the local market environment in India.
Earlier, General Motors' brands Chevrolet, Ford, and Chinese mobile phone brand Honor announced their withdrawal from the Indian market, while Xiaomi, OPPO, and Lenovo also faced scrutiny and targeting from India.
The Indian market is a magical market. At first glance, India has abundant labor and low costs, but the market environment is immature, the industrial supporting system is not sound, and foreign investment entering is prone to operational difficulties, which makes many enterprises fearful
In this situation, Chinese fruit chain companies are also relatively cautious about investing in India. Lixun Precision stated on its investment in India that it is actively exploring and investing cautiously.
According to 21st Century Business Herald reporters, India and Vietnam are the main bases for undertaking Apple production capacity. But India has a majority of Taiwanese assembly plants, while mainland fruit chain suppliers invest more in Vietnam, such as Luxshare Precision, GoerTek, Yutong Technology, Lansi Technology, Lingzhi Zhizao, Meiyingsen, etc.
During reflux?
Despite the frequent news of capacity transfer, China has always been an important supply base for Apple. Public reports show that as of now, over 95% of Apple's products are still manufactured and assembled in China, which has driven the booming development of China's supply chain.
According to the latest reports, Apple's decision to return to China is inevitable.
Zhang Xiaorong told 21st Century Business Herald reporters that China's supply chain has multiple advantages, including a mature supply chain system and relatively low labor costs. In addition, China's manufacturing industry has a huge scale, which enables large-scale production and cost reduction. Moreover, China now has strong technological innovation capabilities in the manufacturing field.
A well-known smartphone blogger recently pointed out on social media that the upcoming iPhone 16 series is still mainly assembled in China, with some high-end flagship models being transferred from Foxconn to BYD. This also proves that China still maintains a leading position in smartphone manufacturing, and it is not easy to immediately transfer to other countries such as India.
From the frequent interactions between Apple executives and Chinese suppliers, it can be seen that they are all expressing their importance to the Chinese supply system.
In March of this year, the Apple retail store in Jing'an, Shanghai officially opened, and Cook personally stepped forward. He said in a media interview in Shanghai, "For Apple's supply chain, I don't think there is anything more important than China. Over the past 30 years, we have been continuously expanding our supply chain in China and increasing investment." He also appeared with relevant officials from BYD, Lansi Technology, and Changying Precision to try to dispel market concerns about Apple's transfer of supply chain.
In July, Apple COO Jeff Williams came to China and visited supply chain companies, which was also an important part. He visited two core suppliers of Apple, Foxconn and Lingzhi Manufacturing, and said, "Seeing the tremendous progress made in Chinese manufacturing over the past 30 years, without them, there would be no success for Apple
It is not common for Apple to visit suppliers in such a high-profile manner in the past.
Apple's supply chain layout in China is quite deep, with many important components and assembly factories located in China. Therefore, while emphasizing the Chinese market, Apple is also striving to balance its global supply chain layout to ensure production stability and efficiency, "said Zhu Keli, Executive Director of the China Information Association, in an interview.
An interesting news is that on July 24th, the Henan Provincial Government decided to support Foxconn in building a new business headquarters in Zhengzhou, with a construction area of about 700 hectares and a total investment of about 1 billion yuan. This is interpreted by market participants as a signal of return.
However, it should be noted that according to public reports, Foxconn's investment is aimed at the implementation of projects such as new energy vehicles, energy storage batteries, digital healthcare, and robotics industry bases.
Beneficial for the domestic industrial chain
The return of production capacity is undoubtedly good news for the domestic industrial chain. According to the previous blogger's disclosure, the assembly orders for the iPhone 16 series have also been transferred from Foxconn to BYD, which will directly benefit the latter.
BYD is well-known in the market for its new energy vehicle business, but in fact, BYD entered the mobile phone OEM business as early as 2003. The company's 2023 annual report shows that its mobile phone parts, assembly, and other product business achieved a revenue of 118.6 billion yuan, accounting for 19.69%. BYD has also appeared on Apple's core supplier list for several consecutive years.
A person close to BYD Electronics said, "The positive impact of the return is certainly there, but it is relatively limited. The company's cooperation with Apple is not a core business and only accounts for a small part of the overall performance
Multiple industry chain companies have told reporters that Apple's transfer of its supply chain to China will definitely have a positive impact on the industry. Part of the Apple supply chain is shifting back from India to China, but mainly focused on mobile phone assembly. The company's main role in the Apple supply chain is the assembly of computers and wearable devices, so the impact is significant, but not too great, "an Apple supply chain company told 21st Century Business Herald reporters.
However, in the long run, the challenges facing the Apple industry chain still exist. The return of Apple to China may exacerbate trade disputes and pose certain risks to supply chain security. In addition, local supply chains also need to address challenges such as environmental protection and rising labor costs, "said Zhang Xiaorong.
Currently, it is the traditional peak season for consumer electronics. As usual, Apple will release the latest iPhone 16 series at its autumn press conference, and major industry chains have also entered a period of intensive stocking. The reporter learned from Foxconn's Zhengzhou factory that the recruitment season has recently entered, and the hourly wage has been increased to 26 yuan.
Overall, the market has high expectations for the improvement of the industrial chain in the second half of the year, especially with the growth of Apple's third quarter performance, coupled with the catalysis of AI, which is expected to drive the growth of the industrial chain.
The electronic team of Dongwu Securities believes that Guolian represents an optimistic year-on-year outlook for the company's second quarter performance, and is expected to maintain a month on month or year-on-year growth trend in the third quarter. As August enters the peak season for stocking iPhoe's new machine components, production and delivery at various stages are expected to accelerate. In addition, Apple is accelerating the construction of its AI terminal ecosystem, which is expected to lead a new round of intelligent hardware replacement cycles and drive the continuous growth of the supply chain.
A research report from Huatai Securities revealed the management's expectations for AI products at the recent Apple earnings conference, and the driving effect of replacement demand may need to be viewed from a broader perspective. The company stated that it is currently difficult to quantify the replacement cycle issue from a mid-term perspective, but they are excited about the services to be provided and believe that it will be an important opportunity for replacement. However, the current time is too short to see a specific trend towards selling Pro/Pro Max. The company will gradually advance its cooperation with OpenAI and its AI related applications according to the rhythm and planned timeline. Non English and non US versions will be released next year.
Huatai Securities believes that the changes in the AI Phone industry are just beginning, and it is recommended to pay attention to the human-machine interaction changes brought by Apple AI, which may bring about industry changes in the next 3-5 years. In the long run, it is optimistic that Apple's industry chain targets will benefit from the shortened replacement cycle and the increase in iPhone shipments.