The success of the iPhone keeps Apple from moving production out of China

The success of the iPhone keeps Apple from moving production out of China
With U.S. President Donald Trump willing to tax U.S. companies and consumers into a recession, Google apparently is ready to move the production of its Pixel handsets and smart speakers out of China and into Vietnam and Thailand respectively. Apple has yet to announce a move away from China although reports earlier this year indicated that it was looking to shift 30% of its manufacturing out of the country. And yes, Vietnam is one of the regions that many believe will end up home to some of Apple's manufacturing facilities-eventually. But this won't happen overnight; finding a trusted supply chain and trained workers takes time.

Apple does have an incentive to move its production out of China; starting on December 15th, the iPhone will be included in a group of products from China that will be taxed at 15% when imported into the states. Originally, the tariff was supposed to start on September 1st, but President Trump didn't want the Christmas holiday season marred by slower growth due to the tariffs. However, the Apple Watch and the AirPods face a 15% tax starting on September 1st. Apple could decide to eat all or some of the tax or pass all or some of it on to consumers in the form of higher prices. Considering that 13.8% fewer iPhones were sold to consumers globally during the second quarter (year-over-year), Apple might decide to absorb the additional costs for now.

The success of the Apple iPhone itself is keeping the company stuck in China while Google moves out


While Apple does produce a small number of iPhones in India, this was originally done to escape an Indian import tax that might have made it hard for consumers in the country to buy an iPhone; while it is the second-largest smartphone market in the world, India is a developing country after all. But what is frightening to consumers worried about higher iPhone prices is that the tech giant is becoming more reliant on its manufacturing facilities in China. According to Reuters, Apple has added far more factories inside the country than out of it. It's main contract manufacturer Foxconn has expanded from 19 Chinese factories in 2015 to 29 this year. And Pegatron, another company paid by Apple to assemble its products, has gone from 8 plants in the country to 12 over the same time period.


And supply chain data calculated by Reuters shows that Apple is pretty much still committed to China. 44.9% of Apple's suppliers were in China back in 2015, a figure that has actually risen to 47.6% this year.


If you're wondering why Google can easily shift Pixel production from China to Vietnam and Apple can't, it is a matter of scale. Even after doubling the number of Pixel handsets to be assembled this year, Google is building only 8 to 10 million phones in 2019 which is a drop in the bucket compared to the number of iPhones that Apple churns out in the course of a year. So Apple needs a larger supply chain with companies that it can trust to deliver in the quantity and quality it needs for the iPhone. But the company might have no choice but to keep iPhone production in China. According to Dave Evans, CEO of San Francisco supply chain firm Fictiv, there are only a few places outside of China that can produce 600,000 phones a day. In other words, the success of the iPhone is what is keeping Apple in China despite the tariffs.

FEATURED VIDEO

13 Comments

2. mackan84

Posts: 648; Member since: Feb 13, 2014

Forget about Apple in that case, that’s a doomsday for us all!

12. sgodsell

Posts: 7605; Member since: Mar 16, 2013

I love how stories like this forget to mention that Apple made themselves stuck in China. Especially when Apple makes its suppliers sign contracts for a certain period of time, and to deliver a certain amount of components to the Chinese manufacturing facilities. Otherwise Apple will have to pay more than just tax. Apple will have to pay Hefty fines. Especially since Apples makes its suppliers pay Hefty fines for not delivering. Remember Apple cut production last year, and Apple had to pay Samsung a heck of a lot of money because they slashed production. Even if Apple tells companies that it's going to cut production, and reduce the number of components that it needs for their iPhones. Then some of the suppliers will still get some money. That is the real truth why Apple is stuck right now in China. Apple could leave tomorrow, but the current contracts force Apple to stay.

4. CDexterWard

Posts: 113; Member since: Feb 05, 2018

Alfred E Neuman wanted to say, “What - me worry?” Sadly he was cancelled for the most part and the tariffs will come. Hooray for consumer pain.

3. stferrari

Posts: 65; Member since: Dec 15, 2014

Trump most likely WILL get a second term, China is a bad actor and needs to be rained in big time so just get over it.

5. TBomb

Posts: 1671; Member since: Dec 28, 2012

So it sound like Apple's investment in China is a byproduct of the sales quantity. I'd say that their investment is more of a culprit than the iPhone success. I'm sure lots of unsuccessful products that Apple sells are also made in China, why can't they be moved? It's not their success, but Apple's investment there as to why they are stuck. Google had little to no investment, and definitely no factories were created with Google's products' demand in mind. If anything, this will help Apple get even lower prices if you ask me: "We are trying to avoid tariffs... We can do that by going anywhere else, so... help us, help you keep our business ;)"

13. sgodsell

Posts: 7605; Member since: Mar 16, 2013

This article doesn't even mention anything about the contracts that Apple forces on its suppliers. In those contracts, Apple agrees to a certain price for so many components, and those components have to delivered to the Chinese manufacturing facilities. Otherwise the suppliersvwill pay Hefty fines. It also goes the other way, where if Apple doesn't commit to the agreed amount, then Apple has to pay fines as well. Has everyone forgot that Apple had to pay Samsung for unused capacity on their AMOLED displays? Apple is forced to stay in China until the contracts run their course. Or Apple will be paying a lot more than tax.

6. oldskool50 unregistered

What? You want Apple to stay in China? What? You want to start paying $1000 for an XR like people outside the US have to pay? Screw what Google is doing. APPLE and Google have. Very different business models. Google wants to offer its services for free, many which are better than what Apple offers that you have to pay for; and they want to keep it that way. What success has Apple had in China? The iPhone is on China's largest carrier and they have a small market. In fact, they have low marketshare in all Asian countries because iPhones are not affordable. If Apple does not leave China, they will use that as an excuse to raise the prices Bush are already out of reach and even in the US where carriers offer monthly payments, Apple is losing sales. If Google who makes one phone is smart enough to move, then Apple will be stupid not too. Don't you think the iPhone is expensive enough? Because if the iPhone XR price goes to $1000 in the US, Apple sales will fall like a rock in water. Fans should be telling Apple they need to move. These tariffs could end Apple.

7. midan

Posts: 3132; Member since: Oct 09, 2017

"What success has Apple had in China?" Apple have over 200 million iPhone users in China.. Around third of something all iPhone users are in China.

10. oldskool50 unregistered

That's all? Apple has 200M users in China. Samsung has been selling phone in china dor at least 3 decades. It was on,y in 2013 that they dropped. So just based on their marketshare just over the past 10 years, samsung has sold over 1B phones in china over just 10 years, while Apple has only 200M. You are still a joke. Just remember this Mida, before Appel sold its first phone, Samsung has already at this point sold over 2B phones worldwide. In the 10 years since the iPhone, Smasung has sold 1B phones 3.5 times in just 10 years while it too Apple 10 years to sell 1B iPhone's. No matter how you slice it, Aple will never in their lifetime ever sell more phones than Samsung. In fact Apple hasn't even sold more phones than Nokia. something Samsung has done. In fact Samsung has now sold almost 4 times as many phones as Nokia has. if Apple was smart and they really wanted China's market. Apple could build a phone like the iPhone 7, but with the A12 and 3GB of RAM and a set of nice cameras and a 1080p display for $500 and they would sell over 50M phones in China for just a single quarter. Even if Samsung didn't sell another phone in China, it would take Apple several decades to even match how many phones Samsung has already sold in China. 200M is a huge number by any means. It still less than how many the biggest OEM's like Nokia and Samsung has sold. Thanks for making me laugh again.

11. midan

Posts: 3132; Member since: Oct 09, 2017

”No matter how you slice it, Aple will never in their lifetime ever sell more phones than Samsung” Why you put so much weight to the unit sales? Your way of thinking is very weird. Your whole comment was about how many phones this and this have sold. Where is Nokia now? Why they aren’t number one because they have sold so many phones? I mean the ones who sells most are winning right? ”if Apple was smart and they really wanted China's market” Yes yes we get it, you know everything better than anyone, i wonder why you aren’t CEO of Apple.. Yesterday you said that Samsung isn’t smart because they don’t lower their phone prices up to $300. You could be Samsung CEO at the same time too! Seriously i don’t think anyone can take you seriously.

8. gadgetpower

Posts: 283; Member since: Aug 23, 2019

Well I can say that Samsung is not successful in China. They belong to others in terms of market share.

9. oldskool50 unregistered

Yep. Not since they fall form 20% in 2013. But Samsung had hardcore competition from Chinese OEM's. IOS doesn't have that same equal competition.

* Some comments have been hidden, because they don't meet the discussions rules.

Latest Stories

This copy is for your personal, non-commercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers at https://www.parsintl.com/phonearena or use the Reprints & Permissions tool that appears at the bottom of each web page. Visit https://www.parsintl.com/ for samples and additional information.
FCC OKs Cingular's purchase of AT&T Wireless