Can India alleviate iPhone problems in China? – DW – 11/09/2022

Can India alleviate iPhone problems in China? – DW – 11/09/2022

China has been the backbone of Apple’s tech dominance for two decades. Starting with the iPod in 2001, Chinese contract manufacturers now make more than 90% of the American tech giant’s products. And the Chinese economic miracle has scorned the booming middle-class market for Apple’s iPhones and other devices that now account for a fifth of its global revenue.

But trade and geopolitical tensions, along with China’s non-proliferation policy, have taken out the luster of cooperation between the two countries. The New York Times It is described as the “best of both worlds business model” as products designed in the United States at lower cost are made in China.

Apple’s major production partners recently announced the transfer of some iPhone production to India, taking advantage of the incentive program introduced by the government of Indian Prime Minister Narendra Modi. The move will quickly see around 5% of the company’s smartphones manufactured in the South Asian country, up from the current 3%.

The moves of Pegatron Corp and Foxconn – Apple’s main manufacturing partner – are widely seen as a sign of growing frustration over harsh COVID lockdowns in Beijing, despite low infection rates, and while the rest of the world reopens their economies.

Foxconn logo in factory in Taipei Taiwan
Taiwan-based Foxconn is Apple’s largest contract manufacturing partnerPhoto: David Chang / dpa / picture alliance

Zhengzhou shutdown affects iPhone production

The latest virus restrictions hit Foxconn’s main factory in Zhengzhou, central China, in particular. The facility, which employs about 200,000 people, has adopted so-called closed-loop operations, where employees live on-site, isolated from the wider community. Foxconn, China’s largest private recruitment firm, has been forced to offer bonuses to entice back workers, who have fled the facility to avoid strict restrictions.

Apple said Zhengzhou is “operating at significantly reduced capacity,” and warned customers to wait longer for the latest smartphone model, the iPhone 14. The last quarter of the year is usually a busy season for companies like Foxconn as they ramp up production. Before the end of the year holiday rush.

Market research firm TrendForce said last week that capacity utilization rates in Zhengzhou are now around 70%, while Ming-Chi Kuo, an analyst at TF International Securities, wrote on Twitter last week that more than 10% of global iPhone production capacity has been affected by the current shutdown. .

India benefits but by how much?

In a new post this week, he forecast 150% year-over-year growth in iPhones made by Foxconn in India next year, adding that the medium/long term goal now is to “ship 40-45% of iPhones from India.” ”

Evan Lam, chief analyst at Hong Kong-based Counterpoint Research, told DW that Apple’s production shift to India – and to a lesser extent Vietnam – may be easier said than done due to the massive logistical networks supporting China’s facilities.

“These supply chains are built not only on manufacturers but also on component suppliers. It’s not easy to build manufacturing in India if you don’t have component makers nearby. Foxconn will still need to ship components to India, so it might not be worth the scale” .

Lam said India would also take some time to build up the same expertise in producing advanced models such as the iPhone. He added that Foxconn has a trained workforce in China estimated in the millions rather than tens of thousands in India, and has made huge investments in modernizing its facilities in China.

China’s coronavirus policy is hurting its economy

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Clouds of geopolitical storm prompt a rethink

COVID isn’t the only threat to Apple’s longstanding love affair with Asia’s largest economy. The ongoing trade war between the United States and China coupled with Beijing’s threat to forcibly retake the island of Taiwan – which China considers part of its territory – are forcing the tech giant to rethink its industrialization priorities.

Last month, the US Department of Commerce effectively blocked a deal between Apple and Chinese memory chip maker YMTC to supply components for the iPhone 14.

Matthew Turpin, who specializes in US policy toward China, told The New York Times. “This whole range of supply chain risks creates a real liability for them.”

Apple’s sales growth in China has also been hit by a significant slowdown in the economy. Bloomberg News reported last week that sales of the four new iPhone 14 models fell by nearly a third in their first 38 days on the market, comparing similar data with the iPhone 13.

Chinese customers look at the new iPhone 14 at the Apple Store in Wuhan on October 16, 2022
Sales of Apple’s new iPhone 14 fell sharply in China compared to its previous model of 13Photo: Getty Images

Can Apple count on China’s growth plans?

Like most multinational companies, Apple is waiting for the next step from Chinese President Xi Jinping to support economic growth. Xi, who is appointed to an unprecedented third term next year, has sought to rein in the country’s economic excesses with the Shared Prosperity Policy, which aims to redistribute more wealth to the poor.

He cracked down on China’s booming tech sector and triggered a property crash that sent apartment prices down 20-30%.

Despite the current headwinds, Bank of America analyst Wamsi Mohan does not expect a “rapid decoupling” of China.

“As Apple remains an indirectly a major employer in China and has close relationships across city, county and central government levels, we expect Apple to continue to navigate the cross-currents between the United States and China as it has done very well over the past several years,” he said to DW.

Edited by: Uwe Hessler

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