Foxconn investing in other countries helps Apple diversify iPhone production out of China

Apple would love to diversify iPhone production out of China. Not only is Apple concerned about the region in terms of geopolitics, it is also worried about the Chinese government doing things like cracking down on COVID like it did last month in Zhengzhou where contract manufacturer Foxconn has its largest iPhone factory. As a result, workers started leaving the campus forcing Apple to admit that consumers will face a delay in receiving ordered iPhone 14 Pro and iPhone 14 Pro Max models now through the beginning of next year.

At the beginning of this month, China started to relax its COVID crackdown and Foxconn says that it will soon allow workers at the Zhengzhou facility to return to their rental apartments just outside the campus. During the crackdown, Foxconn refused to allow workers on campus to eat in the company dining room and forced them to consume their meals inside their dorms.

Apple can't just pick up iPhone production and move it to another country. It needs to find an area where factories can be built, qualified workers can be found, and suppliers are nearby to deliver components in the quantity and quality that Apple needs. One country where Foxconn already builds certain iPhone models is India. Originally, Foxconn built older iPhone models in the country to avoid an import tax on units shipped into the country.

Now, Foxconn has been producing the iPhone 14 in India and wants to assemble more current models, some for global distribution. Last month, Foxconn announced that it was planning to increase the headcount at its Indian factory from 17,000 to 70,000 over the next two years.

According to the English-language newspaper South China Morning Post, Foxconn has invested $500 million in its Indian subsidiary. The company was able to inject the cash into Foxconn Hon Hai Technology India Mega Development Private Limited from its Foxconn Singapore Pte Ltd. unit. 

Apple has to be concerned. With production in Zhengzhou using just 20% of its manufacturing capacity in November (says TF International's reliable analyst Ming-Chi Kuo), the iPhone 14 Pro series is going to be in short supply this month and into January. That's not good, especially when you're in the holiday shopping season. This month, Kuo expects Foxconn to utilize 30% to 40% of its iPhone 14 Pro production capacity in Zhengzhou. That's better, but still far from normal.

Besides investing in India, back in August Foxconn agreed to sink $300,000 into a plant in Vietnam that will expand production there. Vietnam is another country, besides India, that Apple has reportedly considered as a replacement for China.

The Wall Street Journal reported last week that Apple is getting more aggressive with its plans to move out of China completely. The article mentioned a couple of countries that we've discussed often as possible landing places for iPhone production (and we even mentioned the pair in this article), India and Vietnam.

Foxconn appears to be spreading its investments all over the place. Last week it spent $58.98 million on an investment in the Czech Republic. That is where the manufacturer makes smartphones, displays, and cloud servers. Foxconn also has research and development centers in that region. At the same time, Foxconn put $142 million into its unit in Taiyuan, China which it considers a long-term investment.

Apple is already moving some chip production from Taiwan to TSMC's U.S. fabs in Arizona. One facility will produce 4nm chips starting in 2024 while the second plant will go online in 2026 and churn out 3nm chipsets. Apple CEO Tim Cook spoke during a TSMC press conference held in Arizona last week and confirmed that Apple plans on buying chips made in the U.S.A. by TSMC.

Apple is hoping that in five years, its supply chain looks a lot different than it does now.