Nikkei Asian Review reported yesterday that Google (GOOGL) is transferring the production of its smartphone Pixel from China to Vietnam. The company is also planning to move the production of its smart speakers from China, said the report.
Google's decision to establish its hardware production line in Vietnam is seen as a response to rising labor costs in China and pressures from the US-China trade war. Manufacturing companies in China face rising labor costs for some time. In 2017, CNBC stated that some companies are automating their processes and relocating their manufacturing plants due to a rising labor cost. And in May, GoPro announced plans to relocate some of its camera production from China to Mexico to reduce costs.
Does Trump lead the production of Google Pixel phones out of China?
The report on Google's relocation of Pixel phone production in China comes just days after Donald Trump asked US companies to leave China. "The huge amounts of money that the Chinese manufacture and fly in the United States, year after year, for decades, go and must stop. We are ordering our major US companies to immediately start looking for an alternative to China, including bringing your business home and manufacturing your products in the United States., "Trump tweeted August 23rd.
The United States and China have imposed reciprocal tariffs on their products, driving up costs for manufacturers and importers. In June, Bloomberg announced that Google was transferring some of its hardware production out of China to avoid tariffs.
Increased profitability of equipment in a context of diversification of activities
Transferring its production from China could reduce Google's costs and increase the profitability of its hardware business. Google's non-advertising revenue, which includes Pixel smartphone sales, grew 41 percent year-over-year to $ 6.2 billion in the second quarter. The hardware has become an important business for Google, which is striving to diversify its revenue streams. In the second quarter, advertising accounted for 84% of the total revenues of Google's parent company, Alphabet.
As part of its business diversification program, Alphabet has invested in mobile phone technologies, drone delivery and Internet access. Many advertising-funded businesses are looking for sources of revenue other than advertising. Facebook, Yandex and Baidu have also diversified into hardware with smart speaker products. At present, Baidu is one of the world's largest smart speaker companies.