WSJ Examines Apple's Reliance on China Amid Coronavirus Outbreak

[MacRumors]

Production on Apple's devices has been stymied in recent weeks due to delays caused by the coronavirus outbreak in China. Many of Apple's China-based suppliers had to shut down for two weeks or more in February, and there are still staffing issues as factories work to ramp up production around travel bans, quarantines, and other problems.

Amid the China coronavirus outbreak, which has caused Apple to announce that it won't make its March quarter revenue goals, The Wall Street Journal has taken a look at Apple's reliance on China and why Apple is likely to continue to be dependent on China for the foreseeable future.

Apple's operations team has been raising concerns about the company's reliance on China, and as early as 2015, there were suggestions that Apple relocate assembly of one or more products to Vietnam, allowing Apple to start training workers and creating component providers outside of China.

Senior managers shot down the idea at the time, and transitioning away from China has been "too challenging to undertake." Apple has, however, begun to move some production outside of China. Apple has moved AirPods Pro assembly to Vietnam due to tariffs, and now produces some iPhones in India, but a complete break "is impossible."

As The Wall Street Journal points out, Apple CEO Tim Cook has been downplaying the need for changes in the supply chain. On Friday, Cook said in an interview that if there are supply chain changes because of the coronavirus, it will be "adjusting some knobs, not some kind of wholesale fundamental change."

Apple is not able to break away from China because China has hundreds of thousands of employees, both skilled and unskilled, that have expertise in manufacturing Apple's devices.

Finding a comparable amount of unskilled and skilled labor is impossible, said Dan Panzica, a former Foxconn executive. The population in China has allowed suppliers to build factories with a capacity for more than 250,000 people. The number of migrant workers in China, who do much of Apple's production, exceed Vietnam's total population of 100 million. India is the closest comparison, but its roads, ports and infrastructure lag far behind those in China.

"You're not going to be able to have mega-factories anywhere else," Mr. Panzica said. "You're going to have to break them up."

Should Apple decide to move production out of China, that could impact device sales in the country. China is responsible for close to a fifth of Apple's total revenue.

Apple's relationship with China began many years ago, when Foxconn began making iPods in 2001 and the iPhone in 2007. As Apple device sales have grown, the factories that assemble Apple devices have also grown in tandem, resulting in what The Wall Street Journal describes as a "triangle of interdependency."

Apple grew to depend on Foxconn to make devices and Chinese consumers to buy them. Foxconn built its business by leaning on China's vast workforce and control over land to construct factories. And China became beholden to Foxconn as the nation's largest private-sector employer and Apple as a trainer of new technology suppliers.

Apple did plan to assemble some iPhone 11 models in India, but the effort was halted before a single manufacturing line was set up, as Apple believed India was not ready to supply the skilled labor or robust infrastructure that Apple expects. iPhone 11 models were produced in China instead.

That's not likely to change in 2020 because there's no supply chain in place and workers in India aren't ready to produce the high-end iPhones that are expected to be released in 2020. As for U.S. production, Apple is manufacturing some Mac Pro models in the United States (those sold in the United States), but Mac Pro models sold in the rest of the world are still manufactured in China because the U.S. also doesn't have the skilled labor force that China has available.

The Wall Street Journal's full report on Apple's dependence on China can be read on The Wall Street Journal website.

Note: Due to the political nature of the discussion regarding this topic, the discussion thread is located in our Political News forum. All forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

Article Link: WSJ Examines Apple's Reliance on China Amid Coronavirus Outbreak

 

[gugy]

Not only Apple but almost all large corporations rely on China. The Chinese got the USA by the balls.

 

[CWallace]

In addition to Mr. Panzica's comments on the labor pool, China has a massive web of component suppliers (some literally small "mon and pop" shops) that provide important and even critical components for smartphones and other consumer electronics that do not exist in other countries. So Apple could move final production away from China, but would still be heavily dependent on China for a significant portion of the components that go into their products.

 

[JPack]

As the manufacturing engine of the world, China also makes the upstream materials used in the manufacturing of products.

If you're manufacturing an LCD, you need the chemical substrates, glass, optical films, and backlight modules, all of which come from China. The idea that you can separate it and suddenly manufacture in India or the U.S. is just silly.

Tim Cook has talked about the skills available in China. This is exactly what he's referring to. Workers in other countries don't suddenly gain the skills to make and research the above mentioned items. It requires decades of government investment and focus on education.

 

[Baymowe335]

Sometimes, you have to deal in reality. It's not like no one at Apple believes it to be a risk, but it's certainly not easy to "just move production out of China."

It's also worked out pretty well for them as the most profitable company in the world, so there's that.

 

[hagjohn]

Senior managers shot down the idea at the time, and transitioning away from China has been "too challenging to undertake." Apple has, however, begun to move some production outside of China. Apple has moved AirPods Pro assembly to Vietnam due to tariffs, and now produces some iPhones in India, but a complete break "is impossible."

💩 on it being impossible... Anything can be moved. You just need to invest in it.

 

[statik13]

As the manufacturing engine of the world, China also makes the upstream materials used in the manufacturing of products.

If you're manufacturing an LCD, you need the chemical substrates, glass, optical films, and backlight modules, all of which come from China. The idea that you can separate it and suddenly manufacture in India or the U.S. is just silly.

Tim Cook has talked about the skills available in China. This is exactly what he's referring to. Workers in other countries don't suddenly gain the skills to make and research the above mentioned items. It requires decades of government investment and focus on education.

Exactly this. Last I looked there were 90,000 reported cases of the virus across 75 countries.

Even if it was possible, there would be next to no benefit for Apple to move production just on the hopes that some virus won't also hit their theoretical new location.

All that would do is increase production costs, create supply chain delays and raise Apple prices.

 

[calzon65]

Not saying Apple should make a complete break from China, but they better use this as a wake-up call to reevaluate their production supply chain and manufacturing plan.

 

[JPack]

💩 on it being impossible... Anything can be moved. You just need to invest in it.

Who will invest in it? It's impossible for Apple to do it alone, unless they want to spend a trillion a year on education and infrastructure.

Bangalore, the so-called high-tech industrial capital of India gets power interruptions up to 5 times a day.

People have an elementary understanding of the issue, thinking they can copy and paste factories.

 

[simonmet]

No comment on Apple being named as a company using forced labour from the persecuted Uyghur minority, who’ve been sent to “reeducation” and indoctrination camps that look more like detention centres or prisons (with guard towers and barbed-wire fencing); brainwashed; and then deported from their homelands in Western China to work in Western factories?

"The Uyghurs had to come because they didn't have an option. The government sent them here," a local businessperson told the [Washington] Post.

"Chinese factories and Chinese media think it's a positive thing that these Uyghurs are being moved away and are working under semi-military conditions and management". China is one of only a handful of countries that have not ratified the International Labour Organisation's Forced Labour Convention (Australian Broadcasting Corp).

Nike has been particularly implicated.

https://www.abc.net.au/news/2020-03-02/aspi-uyghur-china-forced-labour-report/12017650
https://www.bbc.com/news/world-asia-china-51697800
https://www.washingtonpost.com/worl...ddf5f4-57b2-11ea-8efd-0f904bdd8057_story.html

Tim Cook naturally came out to defend their hiring practices, working conditions and suppliers, but if this is true (as seems likely) it’s a very bad stain on Apple’a Chinese manufacturing addiction.

The report claims it's the biggest persecution based on religion since the Holocaust, and that the aim is to ethnically "cleanse" the far-Western province.

 

[dannyyankou]

I don’t get the point. This outbreak could’ve happened in any country.

 

[Marekul]

Exactly this. Last I looked there were 90,000 reported cases of the virus across 75 countries.

Even if it was possible, there would be next to no benefit for Apple to move production just on the hopes that some virus won't also hit their theoretical new location.

All that would do is increase production costs, create supply chain delays and raise Apple prices.

It would also bring backs many thousand jobs and add billions of value to the local economy. People having more money could easily compensate for a possible price increase.

My bet would be a huge boost in automation, like Kärcher does with their high pressure cleaners build in Germany, but successfully competing in Chinese level price segments.

 

[Art Mark]

Fairly silly. There's not a company producing anything that's not tied to China in one way or another (finance, production, raw materials). It's almost as if the world in involved in each others economies...like a thing called globalization has occurred. Amazing...

 

[hagjohn]

Who will invest in it? It's impossible for Apple to do it alone, unless they want to spend a trillion a year on education and infrastructure.

Bangalore, the so-called high-tech industrial capital of India gets power interruptions up to 5 times a day.

People have an elementary understanding of the issue, thinking they can copy and paste factories.

Who invested in it to begin with? I'm sure there are many companies around the world that would love to supply Apple with parts.

There are no such things as generators/solar/wind power in India?

 

[jjs_nv]

I got a crazy idea. Bring home the troops. Call it a national security emergency. Invest the roughly $1 Trillion per year saved building infrastructure, investing in supply chain and other savings to rebuild our intellectual capital and stop policing the world. Maybe, I don't know, start reinvesting in semiconductor fabs, like the Chionese, South Korean and Taiwan governments all do.

We have a choice, police the world and fail, or invest in our people and succeed.

 

[mi7chy]

What's that saying? Never put all your eggs in one basket. Tim Cooks needs to learn from Elon Musk.

 

[CWallace]

💩 on it being impossible... Anything can be moved. You just need to invest in it.

When it does happen, that investment will likely be in automated production facilities due to the cyclical nature of Apple production (especially iPhones).

China's labor advantage is not (necessarily) cheap wages, but sheer scale. When Apple needs to double iPhone production in late summer each year to accommodate the new models, their Chinese production lines can secure scores of thousands of skilled laborers on short notice to handle that extra production. And then when the production cuts happen at the start of the new year, those extra contracted laborers are released until needed again.

Automated production lines will give Apple that flexibility, just with machines instead of humans. When they need to ramp up production, they activate "surge lines" and then when the demand slacks, those lines can be deactivated until needed again.

 

[boast]

I wonder what the credentials are of these skilled workers that only exist in China. I bet they make loads of money since they seem irreplaceable.

 

[ghanwani]

... The Wall Street Journal has taken a look at Apple's reliance on China and why Apple is likely to continue to be dependent on China for the foreseeable future.

Kudos to the genius of the WSJ for figuring this one out for us.

 

[anthogag]

Today it's coronavirus. Tomorrow it's a political issue. The point is Apple relies too much on China.

What will happen when manufacturing an iPhone is almost 100% automated? When you need 2,500 people instead of 250,000?

These large 250,000 person companies in China undermine Western companies. They will be cheaper and compete directly for your job in Western markets because they're going upmarket...China's Communists have goals to make all the high-tech stuff.

 

[iapplelove]

I don’t get the point. This outbreak could’ve happened in any country.

China has a poor track record, history is nor on their side when it comes to pandemics. Just look at the last 15 years all major outbreaks were out of China.

 

[lixuelai]

The coronavirus will have the opposite effect. If things ever get so bad that the supply chain is in doubt, it is just a matter of time before the entire world is affected. At that point you may as well plan for apocalypse.

 

[JPack]

Who invested in it to begin with? I'm sure there are many companies around the world that would love to supply Apple with parts.

There are no such things as generators/solar/wind power in India?

The government of China invested in education and infrastructure decades ago to build a skilled workforce and a competitive trade environment.

There are plenty of companies around the world that would love to, but they don't have the capability.

Generators and solar don't even come close to supplying the power required.
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I wonder what the credentials are of these skilled workers that only exist in China. I bet they make loads of money since they seem irreplaceable.

Apple Jobs in China: https://jobs.apple.com/en-us/search?location=shanghai-SGI&page=1

A good example is the Mac Display Electrical Engineer in Shanghai. PhD or MS with 5+ years of EE design experience required. The U.S. doesn't even have an LCD plant. Finding a U.S. engineer to work on OLED? Not happening anytime soon.

 

[qiankun]

Exactly. They managed to move to China, the will manage to move out.

Wrong fact. They never moved it to China. iPhone was manufactured in China by Foxxconn since day one.

 

[szw-mapple fan]

They would move to the country was the next lowest wages and with adequate infrastructure. Unless you can put tariffs on every low to middle income country for everything there is no reason to come back to United States.