Apple and the iPhone manufacturing supply chain story

According to the New York Times (NYT), Apple is trying to diversify its supply chain, but its overwhelming dependence on China is not easily changed in the short term, if not increasingly dependent.

Recently, the fact that Apple moved a small part of the supply chain of iPhone production outside of China is said to be a new move by Apple to reduce dependence on China, but with what is happening with the iPhone 14, The story is perhaps much more complicated.

The NYT reports that after 15 years working for Apple, workers and suppliers in China are providing many aspects, from designing and manufacturing speakers to batteries for iPhones. So this product from the time it was designed in the US and manufactured in China has now begun to be designed in both places.

With their technological development, Chinese engineers are participating more and more in iPhone development, especially the upcoming iPhone 14. Apple initially aimed at cheap labor and costs in China, along with productivity here. But after years of approaching, Chinese engineers are gradually moving up in Apple’s supply chain and occupying an increasingly important role.

Even Apple itself is aware of this when trying to move part of its supply chain to India. But even when moving to India, Apple is still quite dependent on Chinese companies.

In Chennai, Taiwan’s Foxconn factory will be the training ground for Indian workers to assemble equipment for Apple. They will be supported by other Chinese suppliers such as Lingyi iTech, which specializes in providing chargers and some devices for iPhones. Currently, China’s famous BYD Group is also setting up a screen-cutting factory in India to be ready to supply Apple.

” They want to diversify the supply chain, but this is too difficult. Apple is too dependent on China, ” said Gene Munster of technology research firm Loup Ventures.

Post-pandemic change

When China distanced itself from technology centers to combat the Covid-19 epidemic, Apple had to abandon its plan to bring engineers from the US to design and manufacture iPhones, and at the same time halted some production activities.

During this period, instead of waiting for employees to finish quarantine, Apple began to recruit more Chinese engineers in Shenzhen and Shanghai to participate in product design for them. The source of the NYT showed that the design team had to continuously have online meetings all night at both ends of the US and China to work.

Immediately after the distance orders were lifted, Apple urged engineers to come to China to work with a salary policy of $ 1,000 / day for 2 weeks of quarantine work and 4 days / week working mode. Although the income can be up to 50,000 USD, many American engineers are still hesitant to go to China due to the complicated epidemic situation.

Faced with this situation, Apple is relying more and more on a highly technical workforce to participate in the design stages, which previously belonged to American engineers. Global Data’s data shows that since the beginning of the year, Apple has posted up to 50% more jobs than in the whole year of 2020 in China.

More dependent

Besides human resources, Apple is also increasingly dependent on Chinese supply. 10 years ago, the Chinese were only in charge of low-tech steps for apple houses, such as assembling parts imported from the US, Japan or Korea.

Figures from economics professor Yuqing Zing of the NGIPS Institute in Tokyo show that the total contribution of these jobs is only about 6 USD / product, or 3.6% of the total value of each iPhone.

However, China gradually increased its contribution to Apple products, starting from speaker production, screen glass cutting, battery supply to camera production. The total contribution of Chinese factories now accounts for more than 25% of the value of each iPhone.

In the same opinion, Gavekal Dragonomics analyst Dan Wang shows that Apple’s dependence on China is not only decreasing but also increasing. While many countries had to suspend supply in the 2020-2021 period because of the pandemic, thanks to the rapid return of Chinese factories, Apple increased its market share and sold many iPhones at a record level.

For this reason, Apple will urge suppliers to increase production to meet the market, and China will still play a key role in this supply chain.

An example given by the NYT is that Apple used to spend up to 150 million USD on plane tickets for United Airlines to transport employees to China to work. A former employee recalls that before the pandemic, flights to Shanghai and Hong Kong in business class were often filled with engineers working for Apple.

Even United Airlines is no longer connecting flights from San Francisco to Hong Kong anymore, but has established a direct route to Shanghai with 4 flights per week, and most of the customers are Apple employees.

*Source: NYT