The trade war between the United States and China leaves some big tech companies in a complicated situation. Apple is one of the best examples, since most production of iPhone and other products is based in China. However, Cupertino saw the panorama a long time ago and began to partially shift to other countries like India.
And if a change of residence can already cause headaches for all of us, it stands to reason to imagine what it means for a large company to relocate its factories out of the country. In the case of Apple, the biggest headache is economic. So much so that some sources are already reporting what it costs the company and its suppliers: $16 billion.
COVID-19 has already created a major problem for Apple’s revenue in China
Apple has 188 suppliers in China, counting everyone involved, from those in charge of the manufacturing process to those who supply them with parts of all kinds. That is why Any slight change can be a huge problem. to the company. And delays are a fundamental part of this.
In addition to the already fierce trade war and factory relocations, there was a significant delay in 2020 due to COVID-19. Major suppliers had to close their factories at the start of this fateful year due to the strong impact of the virus in the country. And even when they reopened, they failed to resolve the problem, because It was very difficult to return to normal activity in the factories.
The figures in this case are in 30 billion dollars. These are the data which, according to TD Cowen experts, place Apple’s losses in China during this period. Of course, there are other factors besides production delays, such as component crises or government restrictions.
Departure to India and other territories is not at all cheap
Resume opening factories in other territories such as India, Vietnam, Mexico or the United States itself, Apple is the one bearing most of the costs. And in most cases, it’s not about changing suppliers or taking advantage of factories they have in other countries.
The reality is that these suppliers are based in China and opening factories in other countries requires a significant investment that involves creating new facilities and practically starting from scratch. Since it’s Apple pushing in this direction, it makes sense that they are responsible for the majority of the costs. And these, as we said at the beginning, They amount to approximately 16 billion dollars
It is common sense to understand that all of this is part of a studied plan and that benefits are expected in the medium to long term. In fact, analysts at TD Cowen estimate that these new plants take about a year and a half to open, not set up. The installation process of starting production and getting everything up and running like in China could take even longer.
And China remains the main territory after all
He The iPhone continues to be Apple’s main source of revenue and also the most established manufacturing in China
In the breakdown, we see that factories in India are mainly used to satisfy local demand. That’s 10 million units, a far cry from the 70 million units demanded each year in the United States alone.
The other products are those that have “easier” manufacturing outside of China. and this is the case of the iPad and Mac supplied to the United States from Vietnam. In this territory, we find the manufacturing of 40% of tablets and computers which are then exported to the United States. The remaining 60% is distributed between local demand and that of other territories, even if the detailed distribution of the destination of these products remains unclear.
Anyway, returning to the iPhone as Apple’s flagship product, the company’s wishes are still very far away. Apple wants the majority of iPhones to come from India, but given what the partial transfer is costing them financially, the idea that all iPhones shipped globally (or a large majority) will still be a long way off. manufactured outside of China. In the meantime, middle solutions such as outsourcing could emerge.
By | Appleinitiated
Cover image | Tracy O on Flickr | Wikimedia Commons
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