Apple Accelerating Supply Chain Retreat From China After iPhone Factory Chaos

Apple Inc’s massive exposure to Chinese manufacturing has left it with production shortfalls of iPhones due to Beijing’s harsh virus containment policies and unrest at a major factory in central China operated by Foxconn. A new report shows the iPhone maker’s retreat from China is accelerating. 

WSJ said Apple is “telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn.” 

Apple’s supply chain data indicates China is the iPhone maker’s primary location. Market research firm Counterpoint Research recently noted 85% of the Pro lineup of iPhones is made in Foxconn’s giant city-within-a-city factory in Zhengzhou. 

The factory has been hit with Covid-19 restrictions and unrest in recent weeks and months, leading to a production shortfall of 6 million iPhone Pros by the end of the year.

“Apple no longer feels comfortable having so much of its business tied up in one place, according to analysts and people in the Apple supply chain,” WSJ noted. 

“In the past, people didn’t pay attention to concentration risks.

 “Free trade was the norm and things were very predictable. Now we’ve entered a new world,” Alan Yeung, a former US executive for Foxconn, said. 

People familiar with Apple’s supply chain said that not all production would be shifted outside China. However, the remaining production in China will draw on a larger pool of assemblers, not just Foxconn. They said Luxshare Precision Industry Co. and Wingtech Technology Co. are two companies in line to receive more business from Apple. 

As for the shift out of China, people involved in the discussions said Apple is telling manufacturing partners to look at other countries. 

However, Apple has spent decades interweaving its supply chains within China, and change won’t come overnight. 

“Finding all the pieces to build at the scale Apple needs is not easy,” said Kate Whitehead, a former Apple operations manager who now owns her own supply-chain consulting firm.  

Ming-chi Kuo, an analyst at TF International Securities who follows the supply chain, said Apple’s longer-term objective is to ship 40% to 45% of iPhones from India. And suppliers said Vietnam could soon be a significant player in manufacturing other Apple products such as AirPods, smartwatches, and laptops.

The bigger trend is the fracturing of the global supply chain. US firms realize China’s zero Covid policy and shutdowns, along with heightened geopolitical risk across the region, are bad for business and recently outlined in the American Chamber of Commerce in Shanghai’s latest survey of US firms in China found a near doubling of respondents over the past year that are slashing investment.