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Apple Inc.'s reliance on China is increasingly resembling its main handicap.
The world's most influential consumer electronics company lost $ 44 billion in market value on Friday after two statements by Beijing and Washington cast the spotlight on its massive Chinese production base, from which almost all the iPhones in the world.
US President Donald Trump, this weekend, has "ordered" US companies to immediately start looking for alternatives to manufacturing in China, which Apple is absolutely unprepared for, d & # 39; after analyst Daniel Ives of Wedbush Securities Inc.
According to Ives, "in the best case, Apple would be able to drive away 5 to 7% of iPhone production out of China" in the space of 18 months. The company would need three years to sell 20% of its revenue, he adds, which is still less than 25% of the iPhone production that Apple needs for its US market. US tariffs on goods from China would therefore have a direct impact on Apple's biggest money maker.
In his title, Ives calls Trump's latest commentary on China "a blow to Cupertino".
Foxconn Technology Group, Apple's primary assembly partner, said it was able to build all iPhones for the US Cupertino company outside of China. However, everything indicates that its deployment would require a lot of time and money. The Apple stock price has had two hits on Friday after the last price announcements.
The president's comments were followed a few hours later by tweets stating that the US would increase the existing and imminent tariff rate on Chinese products. Trump's actions follow a previous announcement that China was considering imposing tariffs on US imports worth $ 75 billion.
Some people familiar with the production of iPhone said that it was almost impossible to relocate the manufacturing of Apple's iconic device in a comprehensive way because of the difficulty of finding a hands-on. skilled work elsewhere, what Apple's CEO, Tim Cook, has decided to highlight in public. . The challenges of replicating complex production lines and the necessary infrastructure are also major obstacles.
There may also be less purely economic reasons for staying with the world's second largest economy. Apple and its army of subcontractors, led by Foxconn, are collectively the largest private employer in China, providing work for millions of people. A reduced presence of Apple could have significant consequences on the local labor market and rub Beijing on an equal footing. Chinese authorities see the slowdown in the economy as a significant risk to stability. The government has shown a penchant for the repression of foreign companies that displease it.
And Apple must push the market leader in smartphones, Huawei Technologies Co., and win back consumers in China, its largest market after the United States.
What Bloomberg Intelligence says
Apple could record additional pressure of 71 basis points on gross margins if President Donald Trump followed up on his threat to tighten the expected tariffs on US imports from China as the trade war intensified.
– Analysts John Butler and Boyoung KimClick here for search
More: China's online army shows foreign brands who is in charge
While Apple has asked at least some suppliers to make proposals on production outside China, there is no indication that the Cupertino company is preparing for a large-scale migration.
In one case, an assembler proposed a location outside of China, but Apple rejected it and the supplier eventually developed in China. GoerTek's recent efforts to transfer part of its AirPod production to Vietnam were done voluntarily, people familiar with this decision said. But none of these concerns the iPhone, which remains mainly made in China, the assembly of old models taking place in India and focused on the domestic market.
Cook's ability to pressure Washington for tariff relief will be put to the test in the coming weeks. It has so far managed to obtain a temporary respite for iPhones, iPads and Apple laptops, which will not be subject to US tariffs until December 15. But, unless a quick and improbable resolution of the trade war is reached, Apple It seems that it will be necessary to develop detailed plans for the construction of iPhones out of China, as expensive as they are.
(A previous version of the story has been corrected to reflect the proper name of the Wedbush analyst.)
(Updates with the context of the Chinese market from the 8th paragraph)
– With the help of Edwin Chan.
To contact the reporter about this story: Debby Wu in Taipei at [email protected]
To contact the editors in charge of this story: Edwin Chan at [email protected], Vlad Savov, Peter Elstrom
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