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As risks increase, Apple decreases exposure to China

According to statistics from the company’s supply chain, Apple Inc.’s extensive exposure to Chinese manufacturing has decreased since the COVID-19 epidemic started.

Analysts anticipate the dangers – and Apple’s withdrawal – to increase as the world’s largest iPhone manufacturer, run by Foxconn in central China, struggles with production deficits and employee discontent, which are primarily the result of Beijing’s strict virus containment rules.

According to data from Apple’s supply chain, between 44% and 47% of its suppliers’ production sites were in China five years prior to 2019, but by 2020 and 2021, that number had dropped to 41% and 36%, respectively.

The data demonstrates how Apple and its suppliers are diversifying, with investments in Vietnam and India and increased sourcing from Taiwan, the US, and other countries. Analysts and academics predict that Apple will continue to be highly exposed to China for many years to come.

The concentration of suppliers in China, where Foxconn produces the majority of the world’s iPhones (70 percent), has been a key component for Apple, the most successful smartphone manufacturer in the world.

However, the strategy is changing due to rising geopolitical and trade tensions between Beijing and Washington, which pose potential long-term risks, as well as China’s COVID-related lockdowns and restrictions.

According to government sources with knowledge of the situation who spoke to Reuters earlier this month, Foxconn is speeding up its growth in India and has plans to treble the workforce at its iPhone manufacturing over the next two years.

By 2025, J.P. Morgan projects that 25% of all Apple products, including Mac computers, iPads, Apple Watches, and AirPods, would be produced outside of China, up from 5% currently. Apple is also expected to manufacture one in four iPhones in India by that time.

However, according to the Reuters study, there are currently no regions that stand out as significant gainers to equal China’s fall in the Apple supplier data until 2021.

The largest growth was in the United States, which increased from 7.2% to 10.7% in 2021, followed by Taiwan, which increased from 6.7% to 9.5%. India increased from less than 1% to less than 1%, maintaining a negligible presence, while Vietnam increased from 2.2% to 3.7%.

More than 600 sites among Apple’s top suppliers are covered by its yearly statistics, which accounts for 98% of the company’s direct spending. It is unknown how much money Apple spends with each supplier, and the companies that make the cut from among the thousands of potential suppliers can change every year.

Along with suppliers of chips, glass, aluminum casings, cables, circuit boards, and other parts, they also include contract manufacturers who put together watches, wireless headphones, and iPhones, iPads, and other electronic devices.

Apple’s departure from China is becoming more obvious, as evidenced by its own supply chain data, but the risks associated with this concentration of operations are just as apparent.

The demands of Beijing’s COVID containment policy, which mandates that workers be cut off from the outside world in closed-loop systems to maintain production lines, are largely to blame for the labor issues at Foxconn’s China facility.

Investors who are concerned with both production goals and human rights issues have become aware of the unrest.

Source: Reuters

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