Apple is a bit like Superman. Wait, wait, listen to me. Sure, it only gets part of its power from the yellow sun (thanks, solar), and maybe even its rumored smart glasses couldn’t disguise it as Clark Kent, but the company certainly isn’t short on superpowers: hundreds of millions selling dollars worth of products, occupying a prominent position in multiple technology markets, able to jump tall buildings in one go, etc.
But just as Superman has his kryptonite, Apple too has one major weakness that can bring the company to its knees: its over-reliance on China. Yes, the region provides a large portion of the company’s sales, but more importantly, it is the epicenter of Apple’s global manufacturing and assembly operations. And when that’s threatened — through political concerns, supply chain issues, or COVID-related conundrums — it can put a serious dent in a company’s bottom line.
Look no further than Cupertino’s recent communiqué explaining that the most expensive (and presumably most profitable) iPhone models would take a sales hit due to a pandemic-related factory shutdown. Recently, however, Apple has begun taking steps to rectify this reliance on China, looking to move production to a number of other places. It’s a good long-term decision, but it won’t be fast and there will be plenty of challenges along the way.
Get rid of the problem
Processors are a critical part of Apple’s supply chain. Moving from Intel to its own custom silicon in recent years has allowed Apple to exert greater control over its hardware, delivering significant performance improvements and unlocking new features. But this overarching control also entails risks. The A- and M-series chips that power Apple’s devices are currently manufactured exclusively by TSMC, a semiconductor company based in Taiwan.
to design and engineer its own CPUs, it still relies on foreign companies for production.
IDG
Apple’s relationship with China hangs over this company, both in terms of the country’s long and complicated political relationship with Taiwan, which Apple has had to navigate (and hasn’t always gotten it right – see the removal of the Taiwanese flag emoji in China) as well as increasing geopolitical tensions in the region. Apple isn’t alone in this: At a recent company meeting reported by Bloomberg, CEO Tim Cook said 60 percent of the world’s processors come from Taiwan.
In that same meeting, Cook said Apple would move to source some of its processors from a new factory TSMC is building in Arizona, though that facility will be years away from coming online and probably won’t be producing chips for it right away. the company’s newest factory. devices. Moreover, the capacity of that factory would be about 20,000 chips per month, a drop in the ocean compared to the hundreds of millions of devices Apple ships in a quarter.
India Inc.
Apple’s reliance on manufacturing in China has also impacted the company’s ability to reach other markets, particularly India. As the second most populous country in the world, it offers a huge potential market for Apple to expand its customer base. But those opportunities have been limited by restrictions on sales of products not made in India, which is one of the reasons Apple first started manufacturing its older iPhone models there: those cheaper devices were better positioned for a price-conscious market .
Apple is slowly shifting some iPhone production away from China.
Henry Burrell / Foundry
This year, the company has also started ramping up production of its flagship iPhone models in India. While that’s good for Apple’s sales in India, it’s also promising for the overall picture, as the company plans to export some of those units as well.
While it’s estimated that only about 5 percent of those phones will be made in India, that’s a not-insignificant chunk that could grow and reduce production in China in the future. But like diversifying chip production outside of Taiwan, it’s a process that will take some time to take effect.
Around the world
Apple has also explored production and assembly in other places, such as Vietnam and Brazil, but so far these are small chunks of total capacity.
And this is where Apple’s weakness comes in. At the scale the company makes products, it’s just hard to find places that can get the required numbers. China, for better or for worse, has invested in its supply chain and companies capable of producing at these volumes, enthralling Apple to the country. That still leaves Apple vulnerable, forcing them to take questionable steps, such as the recent feature change to limit the availability of Apple’s AirDrop feature, which was allegedly used to stage protests in China.
To hearken back to our Man of Steel equation, it’s like being constantly under the influence of low grade kryptonite exposure. It’s not like Apple is in danger of being dealt a fatal blow, but everything the company is trying to do is a bit more difficult: It’s reduced from superhero status to a mere mortal like the rest of us. That relationship with China is slowly crumbling at Apple, and these diversification moves will hopefully reach the point where it’s able to put that kryptonite in a lead box and regain its powers.
