Apple is looking to diversify its supply chain beyond China
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While China continues to loosen its COVID restrictions, one company is growing nervous about how reliant it has become on the world's second-largest economy. The country has been a key piece of how Apple (NASDAQ:AAPL) transformed into becoming the world's most valuable company, with a supply chain and outsourcing strategy that has been in place since the late 1990s. The tech giant is now looking elsewhere in Asia, like India and Vietnam, but challenges await and the task won't be easy.
Backdrop: Turmoil at Apple (AAPL) supplier Foxconn's (OTCPK:FXCOF) iPhone factory in the city of Zhengzhou drew attention last month as videos of worker riots were shared on social media. It's unclear how many of the 300,000 employees at "iPhone City" were involved, but Apple (AAPL) has flagged "lower iPhone 14 Pro and iPhone 14 Pro Max shipments" due to prior curbs at the complex, which includes dormitory accommodations and is responsible for around 80% of global iPhone output. Besides iPhone assembly, many Apple (AAPL) components are made in China, with some estimating that 95% of total iPhone supply still comes from the country.
"In the past, people didn't pay attention to concentration risks," noted Alan Yeung, former U.S. Director of Strategic Initiatives at Foxconn. "Free trade was the norm and things were very predictable. Now we've entered a new world."
Fun fact: Operating profit for Apple's (AAPL) China business totaled $31B last year, which was more than the figures for each of China's largest tech giants - Alibaba, Baidu, Tencent and Xiaomi.