Apple’s biggest supplier splits its manufacturing to avoid being hit with tariffs

It appears Apple and CEO Tim Cook are hedging their future bets by diversifying more production outside China.
Photo: Apple

Apple manufacturer Foxconn said Wednesday that it plans to split its supply chain in two. One segment will service the China market, while the other will be focused on the U.S.

Foxconn chairman Young Liu said the manufacturing giant now operates 30% of its capacity outside China. This up from 25% last June. It is increasing this non-China capacity by moving manufacturing to other regions such as Southeast Asia. This is to avoid possible tariffs on Chinese goods headed to the U.S.

Liu proclaimed that China’s “days as the world’s factory are done.” He also mentioned Foxconn’s focus on creating a “manufacturing ecosystem” in India, Southeast Asia, and the Americas.

Apple supplier splits manufacturing

This is in keeping with a recent rumor suggesting that Apple is putting together a supply chain consisting of exclusively Chinese manufacturers to build iPhones for the China market. Another supply chain will focus on markets outside the country.

While bisecting its manufacturing in this way doesn’t solve all Apple’s problems with building devices in China, it could help Apple escape some of the repercussions of the still-rumbling US vs. China trade war. Last year, Apple’s share price was hammered hard by reports that tariffs on imported iPhones could cause Apple to substantially raise prices.

Manufacturing iPhones for the Chinese market inside China Apple would also help Apple avoid instances like the recent standoff in which components ran into border problems while being transferred from China to India. Last year, Liu said that the iPhone could be manufactured outside China if required.

Foxconn reported a net income of $778 million for Foxconn’s quarter ending in June. This was reportedly aided by increased demand for the iPad and MacBooks, presumably while people have been working from home. Young Liu said revenue will be down in the next quarter. This is due to the delayed launch of the iPhone this year. Apple represents around half of Foxconn’s overall sales.

Foxconn started producing iPhones for Apple back in 2007, the year Apple announced its breakthrough smartphones. However, Apple has been working with Foxconn, building products like the iMac, since 2000.

Source: Bloomberg

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