Pandemic speeds up iPhone makers' plans to exit China

[Viet]

Customers and workers wearing facemasks in an Apple store in Shanghai, China, on March 16, 2020.PHOTO: AFP



Wistron Corp, one of Apple's manufacturing partners, said last week that half its capacity could reside outside China within a year.

The declaration underscores how the Asian assemblers that keep the world supplied with iPhones and other gadgets are shifting to a higher gear after the coronavirus showed the folly of staking everything on one country.

The move to shift production out of China has been under way since the trade war between Washington and Beijing reached its zenith last year.

Now, the Covid-19 pandemic is expediting that. Decisions by companies such as Wistron and other Apple partners including Hon Hai Precision, Inventec and Pegatron could reshape tech supply chains.

Taipei-listed Wistron is targeting India - where it is already making some iPhones - along with Vietnam and Mexico, setting aside US$1 billion (S$1.35 billion) to fund the expansion this year and next. "We understand from a lot of messages from our customers that they believe this is something we have to do," chairman Simon Lin said on an earnings call. "They're happy and appreciate that we can continue to make such a move and they will continue to work with us."

Pegatron, which assembles iPhones, is also diversifying its manufacturing sites, including by adding capacity back home in Taiwan. Chief executive officer Liao Syh-jang said last Thursday that it hopes to kick-start manufacturing operations in Vietnam next year, after setting up a new plant in Indonesia last year, and it is further looking at India as a location for new facilities.

The firm said last Friday that it had agreed to purchase land and a plant in northern Taiwan.

Inventec, Apple's main assembly partner for AirPods, said last Tuesday that it is preparing to establish a unit in Vietnam.

More than any other assembler, Hon Hai encapsulated how the coronavirus brought China, the world's No. 2 economy, to a standstill. Better known as Foxconn, it signals a potential shift in a global production paradigm that has governed the electronics industry for well over three decades.

The company also has facilities in India, where it began churning out iPhones last year, and Vietnam. "Trade, the virus, all these things will make the world very different in the next decade," Mr Alex Yang, the firm's investor relations chief, said in a recent call.

But it is unlikely that China will fully give up its place as the world's electronics workshop any time soon. This is because it is difficult to replicate the intricate network of suppliers, competent workers, efficient distribution systems and large home market that the country offers. Large-scale relocation of manufacturing capabilities would also take time.

Apple chief executive Tim Cook said late last month that the company was not looking to make any quick moves out of China in the light of virus-related supply-chain interruptions. "We're talking about adjusting some knobs, not some sort of wholesale, fundamental change," he said.

Still, the outward-bound trend is accelerating, especially among smaller-scale manufacturers. That extends to gadget-makers serving customers other than Apple.

Meiloon Industrial, which makes speakers and counts Harman International and Xiaomi among its clients, is seeking alternatives to China-based production and speeding up a move of capacity to places like Taiwan and Indonesia, said spokesman Eva Kuo.

The singularly trying experience of dealing with the outbreak in China will reverberate well after Covid-19 subsides, raising questions about the globalised business model of modern corporations.

"It's a wake-up call," Mr Joerg Wuttke, president of the European Union Chamber of Commerce in China, said last month. "China was a given, it was the perfect infrastructure for us to source and buy from there, and to sell. Now, of course, we have to reconsider scenarios, how to deal with China in the future."


https://www.straitstimes.com/business/economy/pandemic-speeds-up-iphone-makers-plans-to-exit-china

 

[Viet]

It’s cheaper and better to make iphone in Vietnam.

Apple share will get a boost.

Taiwan probably not so much. Too expensive. India and Indonesia are direct tough competitors for Vietnam.

@Nike

 

[TruthSeeker]

Anywhere but China is good. Vietnam is still a problem as a one-party dictatorship, hence unpredictable rules of law. Mexico and other Central and South American would be the best long term investments.

 

[CrazyZ]

It’s cheaper and better to make iphone in Vietnam.

Apple share will get a boost.

Taiwan probably not so much. Too expensive. India and Indonesia are direct tough competitors for Vietnam.

@Nike

Problem for apple is that China is also a huge consumer of smart phones. Plus the much of the global supply chain in electronic components is in China. I'm sure they can have a few token assembly plants outside of China. But a major exit would be difficult.

 

[Viet]

Problem for apple is that China is also a huge consumer of smart phones. Plus the much of the global supply chain in electronic components is in China. I'm sure they can have a few token assembly plants outside of China. But a major exit would be difficult.

But that is changing.
Chinese prefer Huawei and other domestic brands. The market is shrinking for Apple.
Plus the global market will remain weak this year.




Chinese iPhone factories cut workers as demand dips
Some of the biggest factories supplying Apple are reducing staff and cutting overtime

Apple CEO Tim Cook visits Foxconn’s ‘iPhone City’ plant in Zhengzhou © Reuters

April 21, 2020 11:45 am by Ryan McMorrow and Nian Liu in Beijing


Chinese factories that supply Apple have slowed production and reduced staff as the coronavirus pandemic dents global demand for smartphones and other gadgets.

Foxconn, the contract manufacturer, has paused hiring at its huge factory complex in Zhengzhou, Henan province, which assembles iPhones, according to several workers.

They said that the plant, which employs hundreds of thousands of workers and is nicknamed “iPhone City”, has also begun to cut some of the temporary workers it hired in large numbers in February as it ramped up production after a long pause.

Overtime hours, a staple of factory work that boosts salaries, has been curtailed as well, the workers said, and notices seen by the Financial Times encouraged workers to take holidays.

“We heard the outbreak is very serious in the US. It’s had a big impact on us,” said a worker surnamed Li, who assembles the iPhone 11 model at the plant. Mr Li said he expected a week-long break over the May 1 labour day holiday. Last year he was given one day off.

“We have not worked overtime since April 10,” said another worker surnamed Wang, also on the Apple production line. Mr Wang said temporary workers at the factory were dismissed last week.

Apple closed all of its stores outside of Greater China in March and has only recently started to reopen some of its retail outlets beginning with South Korea last week. “The hit to offline retail goes without saying. Apple only managed to reopen its first store outside of China on April 18,” said Jia Mo, analyst at market research company Canalys.

TrendForce, a technology industry research company, said it had cut its forecast for Apple smartphone production this year from 200m units to 180m units because of the pandemic.

“The global economy has taken a nosedive, which may induce iPhone users to postpone their phone replacement cycles,” said Mia Huang, an analyst at Trendforce. Goldman Sachs analysts expect iPhone shipments to fall 36 per cent this quarter.

Taiwan’s Pegatron, another large Apple contract manufacturer, also appears to be cutting workers at its Shanghai factory as demand falls. “About a thousand temporary and third-party dispatched workers were fired,” said one employee at the plant, who asked to remain anonymous.

“The US orders are not coming, so why would we keep all the workers,” he added. Pegatron has also encouraged temporary workers to leave voluntarily.

“Temporary workers normally drift around between big factories but now they have nowhere to go,” said Li Chao, a third-party recruiter for Foxconn and Pegatron. “Workers are being laid off across the country.”

“The only places that are hiring are face mask factories but they are usually small scale and fill up fast,” said Mr Li.

Apple and Foxconn declined to comment. Pegatron did not immediately respond to a request for comment.

 

[j20blackdragon]

It’s cheaper and better to make iphone in Vietnam.

There's no economies of scale in Vietnam.

A factory in China can assemble phones for Apple, Huawei, Xiaomi, Oppo, Vivo, etc. and has access to the MASSIVE Chinese market.

A factory in Vietnam assemble ONLY for Apple and may have restricted access to China.

A factory in China has unrestricted access to upstream components such as lithium-ion batteries, motherboards, OLED panels, etc.

A factory in Vietnam has to IMPORT all these things from China.

Who do you think has the advantage here?

 

[FairAndUnbiased]

For an example of what Vietnam is competing with:

One automated assembly line can produce more than 1 million low wage coolies.

 

[Viet]

Anywhere but China is good. Vietnam is still a problem as a one-party dictatorship, hence unpredictable rules of law. Mexico and other Central and South American would be the best long term investments.

Let’s say one party state
Vietnam has more freedoms than China though. Google, Facebook, YouTube and other evil stuffs are allowed. All propaganda CNN, Fox News, etc. permitted.

For an example of what Vietnam is competing with:

One automated assembly line can produce more than 1 million low wage coolies.

Vsmart new factory can make 125 million smartphones per year with few employees.
Same for Vinfast car factory, capacity 500,000 cars per year.

 

[tower9]

Vietnam will definitely benefit from tensions between China and the West. Vietnam was already well on its way to being the greatest industrial power of Southeast Asia because it has a Confucian culture, but the trade war was an extra catalyst.

With that said, Vietnam is far smaller than China and there is only so much it can absorb.

India, based on metrics, is the best candidate to replace China completely as a hub of global industrial supply chains but then reality hits because India's infrastructure and labor quality is much worse than China, also the Indian political system and societal structure is very fragmented.

 

[Viet]

There's no economies of scale in Vietnam.

A factory in China can assemble phones for Apple, Huawei, Xiaomi, Oppo, Vivo, etc. and has access to the MASSIVE Chinese market.

A factory in Vietnam assemble ONLY for Apple and may have restricted access to China.

A factory in China has unrestricted access to upstream components such as lithium-ion batteries, motherboards, OLED panels, etc.

A factory in Vietnam has to IMPORT all these things from China.

Who do you think has the advantage here?

30 percent component parts are imported from China. Not everything 100 percent. What’s the benefits if we import all from China?

 

[casual]

It’s cheaper and better to make iphone in Vietnam.

Apple share will get a boost.

Taiwan probably not so much. Too expensive. India and Indonesia are direct tough competitors for Vietnam.

@Nike

Assembly lines are almost fully automated in China now. That plus first class infrastructure makes China more competitive then the rest of the world in high end manufacturing. However the geopolitics between USA and China is making companies look to other countries and Vietnam is the most attractive choice. India and Indonesia is still not there in terms of basic infrastructure to support manufacturing.

 

[Viet]

Assembly lines are almost fully automated in China now. That plus first class infrastructure makes China more competitive then the rest of the world in high end manufacturing. However the geopolitics between USA and China is making companies look to other countries and Vietnam is the most attractive choice. India and Indonesia is still not there in terms of basic infrastructure to support manufacturing.

Ok we have more FTAs with all major economies. We have more players.
Samsung. Lg, Microsoft, Google, Vsmart, bphone, soon Apple, we are the major production base for smartphone makers. certainly take more time for us to catch up the level of China.

 

[Arulmozhi Varman]

Foxconn has been manufacturing iPhones in India for last 2 years in Chennai. It's not secret. However the issue is, it's assembling iPhones and except 2-3 suppliers most of the products to assemble are still being imported from China. It will take quite sometime to establish supply chain for high scale.

While Vietnam is at a real advantage as it's next door, and it's true many companies are moving to Vietnam, the problem is Vietnam has low population to take advantage of all move out of China. If Vietnam concentrates it's workforce on electronics manufacturing, then it will lose advantage of other manufacturing products.
This is where India comes in. India will be costly in the short term. Not all suppliers can be convinced immediately to move shop to India. However if all suppliers can move to India then we will be cheaper to work with. That's something advantageous to India in the longer run. India should also concentrate on mech manufacturing, optics, semiconductors, chemicals to become a part of overall supply chain.
It's true supply chains will be wary of moving out of China as they will lead to emergence of local competition. It's always a risk. But it's the product manufacturer who chooses a supplier.

 

[FairAndUnbiased]

Foxconn has been manufacturing iPhones in India for last 2 years in Chennai. It's not secret. However the issue is, it's assembling iPhones and except 2-3 suppliers most of the products to assemble are still being imported from China. It will take quite sometime to establish supply chain for high scale.

While Vietnam is at a real advantage as it's next door, and it's true many companies are moving to Vietnam, the problem is Vietnam has low population to take advantage of all move out of China. If Vietnam concentrates it's workforce on electronics manufacturing, then it will lose advantage of other manufacturing products.
This is where India comes in. India will be costly in the short term. Not all suppliers can be convinced immediately to move shop to India. However if all suppliers can move to India then we will be cheaper to work with. That's something advantageous to India in the longer run. India should also concentrate on mech manufacturing, optics, semiconductors, chemicals to become a part of overall supply chain.
It's true supply chains will be wary of moving out of China as they will lead to emergence of local competition. It's always a risk. But it's the product manufacturer who chooses a supplier.

India isn't even a player in semiconductor. The number of players in semiconductor are tiny. Optics and chemicals, not as good as Chinese either. Mechanical manufacturing... this requires a ton of experience, see US, Japan and Germany. China is catching up only with decades of investment.

 

[Kaniska]

Vietnam will definitely benefit from tensions between China and the West. Vietnam was already well on its way to being the greatest industrial power of Southeast Asia because it has a Confucian culture, but the trade war was an extra catalyst.

With that said, Vietnam is far smaller than China and there is only so much it can absorb.

India, based on metrics, is the best candidate to replace China completely as a hub of global industrial supply chains but then reality hits because India's infrastructure and labor quality is much worse than China, also the Indian political system and societal structure is very fragmented.

India has a lot of problems with respect to labor laws and Infrastructure...Unless there is a miracle, i do not see India is getting anything from the manufacturing side from China.