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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."
contributed to this article.
Write to Yoko Kubota at firstname.lastname@example.org and Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
June 20, 2019 12:11 ET (16:11 GMT)
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