By Yoko Kubota and Tripp Mickle
Apple Inc. is asking suppliers to study shifting final assembly
of some products out of China, people familiar with the matter
said, as trade tensions prompt the company to consider diversifying
its supply chain.
While any major changes would be difficult and could take months
to years to implement, Apple is looking into the feasibility of
shifting up to around a third of the production for some devices,
some of the people said. Destinations under consideration include
Southeast Asia, the people said.
No decision has been made on such a move, some of the people
said. Any such transition, they said, is unlikely to significantly
affect the iPhone in the near term because the company relies on
hundreds of thousands of workers available in China to manufacture
the high-volume product, which depends heavily on human hands for
assembling, as well as a deep network of suppliers there.
In a letter to the U.S. Trade Representative this week, the
company said the latest proposed U.S. tariffs on Chinese goods
would limit its contributions to the U.S. economy and impair its
ability to compete world-wide. It said the tariffs would affect all
of Apple's major products, including iPhone, iPad, Mac, AirPods and
accessories.
Apple is expected to launch updated iPhone models in the fall.
Foxconn Technology Group, its biggest assembler, is starting
preparations to ramp up production for those models in China, other
people familiar with the matter said. Taiwan-based Foxconn said
company policy precludes commenting on current or potential
customers or any of their products.
"There is some flexibility to move Mac and other products, but
it won't be easy," said Mehdi Hosseini, an analyst with Susquehanna
International Group who focuses on the technology supply chain.
"You have to have relatively skilled labor. You have to create an
inventory hub. It would take time."
The situation is delicate for Apple, even as many manufacturers
are trying to lessen dependency on China and shift some production
to avoid the higher tariffs Washington is imposing on hundreds of
billions of dollars in Chinese-made goods. Apple relies on China
for about a fifth of its total sales. Its footprint is such that it
accounts for three million jobs in the country through its supply
chain.
An Apple spokesman declined to comment.
Apple assembles most of its products -- including the iPhone,
iPad and MacBook -- in China through contract assemblers such as
Pegatron Corp., Wistron Corp. and Foxconn, which is formally known
as Hon Hai Precision Industry Co. Pegatron and Wistron are also
based in Taiwan.
Outsourcing to China helped solidify Apple as one of the world's
largest and most profitable companies. Chief Executive Tim Cook
helped build the company's sophisticated and efficient supply chain
there, relying on Foxconn, Pegatron and others to crank out
hundreds of millions of iPhones annually.
Mr. Cook has remained neutral in the trade feud, saying
repeatedly that the countries would reach an agreement because it
was in their best interests. He met with President Trump last week
and visited the office of U.S. Trade Representative Robert
Lighthizer in January, according to public records. He also
attended a Chinese government event in March in Beijing.
Still, Apple is making contingency plans. In May, the U.S. laid
out nearly $300 billion of new Chinese imports that would face up
to 25% levies as early as this summer, including smartphones and
notebook PCs.
To avoid this new wave of tariffs, Apple has accelerated
production and shipment of some China-made products for
stockpiling, people familiar with the matter said.
Apple has also been asking suppliers whether it is possible to
further cut costs, some of the people said. That would help bring
down the total cost for Apple products and, in the case that
tariffs hit, help Apple absorb some of the costs.
The Nikkei Asian Review earlier reported that Apple asked its
major suppliers to assess the costs of shifting 15% to 30% of their
production capacity from China to Southeast Asia.
Mr. Trump and Chinese President Xi Jinping are to meet late this
month on the sidelines of a Group of 20 summit in Japan to discuss
the trade disputes. Even if the two sides eventually strike a deal,
many tech companies are likely to still feel pressure to diversify
supply chains as both Washington and Beijing see securing
technology trade secrets and supplies as vital to national
security.
Foxconn, which assembles iPhones, iPads and Macs, said this
month that it is ready to shift production for Apple out of China
to existing plants if necessary. Foxconn previously said it had
invested more than $213 million into its India subsidiary late last
year and early this year and that it is looking at Vietnam, though
detailed plans there haven't been divulged.
Earlier this week, Foxconn issued a statement saying it started
investing in mainland China in 1988 and that it isn't leaving.
Meanwhile, Pegatron is investing around $10 million to expand a
plant on the Indonesian island of Batam, near Singapore. Pegatron
is shifting production of some smart devices out of China to avoid
the impact of tariffs, according to a person familiar with the
matter.
Supply-chain executives have said that shifting production could
be done as quickly as three months if there is already a factory
building at the destination.
Even so, international moves won't come easy. For instance,
production equipment and assembly lines would need to be
dismantled, packed and cleared through customs before they can be
shipped to a new location, one industry executive said.
Then those must be reinstalled, tested and calibrated, and their
output rate must be adjusted. On top of that, certain software and
environmental-control systems must be put in place, and people such
as line operators, engineers and quality managers must be available
and trained, the person said.
Apple must approve those production lines built by the contract
manufacturers, and Apple is known to have tough standards, people
familiar with the matter said.
"It's a big leviathan," one of these people said. "You can't
just move these things around."
Yang Jie
contributed to this article.
Write to Yoko Kubota at yoko.kubota@wsj.com and Tripp Mickle at
Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
June 20, 2019 12:11 ET (16:11 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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