It Won’t Be Easy for Apple to Move iPhone Production Outside of China

iPhone Xs Max back

The ongoing trade war between the United States and China has put Apple in a bit of a fix. The company’s supply-chain is primarily based in China and any import tariffs from the US on goods imported from China could negatively affect Apple’s profit margins.

A 15% tariff will be applicable on the Apple Watch, AirPods, and Beats-branded headphones from Apple starting Septemeber 1. On iPhones, the tariff will take effect on December 15.

While Apple and its biggest supplier, Foxconn, have said that it could meet the U.S. iPhone requirements from factories outside of ChinaReuters analyzed Apple’s supply-chain data for the last five years and found the results to suggest otherwise. Contract factories that make components for various Apple products are concentrated in China, with 47.6% factories located in the country. While some of the component makers do have their factories in Brazil and India, they are only meant to meet local demand.

Apple suppliers like Foxconn and Pegatron do have factories outside of China. But they are small, meant to meet local demand, and they simply cannot churn out devices like their factories in China. There are a multitude of reasons behind this including the availability of cheap labor in China, more sophisticated factories, and a tight supply-chain integration.

Many other smartphone OEMs can move their production outside of China because they do not ship millions of phones like Apple. Google, for example, has already announced that it is moving its Pixel smartphone production to Vietnam from this year. Many other OEMs like OnePlus, Oppo, and Xiaomi also have big manufacturing facilities in India.

Our Take

Apple’s partners don’t need to have the capacity to produce millions of iPhones from their factories outside of China. They only need to ensure that they produce enough iPhones to meet the demand in the US, with their Chinese factories taking care of the demand for the rest of the world. The tariff hike on iPhones is scheduled to take place from December 15 which gives Apple plenty of time to stock iPhones to meet the demand in the US for at least a quarter.

[Via Reuters]