Half of all iPhones could be made in India by 2027, according to projections by analysts who report that Chinese suppliers are already feeling the pinch.

A new report from the South China Morning Post (SCMP) suggests that up to half of all iPhones could be made in India by 2027, up from the previous forecast of 25% by 2025. Local suppliers are already feeling the impact of Apple’s efforts to move production outside domestically, with Vietnam also benefiting from the Cupertino company’s plans to reduce its dependence on China. Since 2019, when the United States imposed duties on certain products imported from China but also due to the impact of Covid-19, Apple has seriously discussed the possibility of relocating its production lines with partners.

Apple’s dependence on China is no secret, as most of its device manufacturing is done in that country. In recent weeks, this dependency has put increasing pressure on companies’ supply chains. Zhengzhou (also known as iPhone – City) is facing unrest for various reasons, which has disrupted production of the iPhone 14 Pro and Pro Max.

The straw that broke the camel’s back?

It should be remembered that Apple bears the full brunt of the political grief in China: who says lockdown in China, says delays in Apple’s supply chain, and this is not a lost situation since late 2019. Covid -19 therefore created a lot of upheaval in China and Apple as well have to bear some of the impact.

Apple has a manufacturing presence in India with Foxconn and Wistron assembling iPhones in the country. Previous reports indicated that Apple is looking to expand its production capabilities mainly in two countries: India and Vietnam. In Vietnam, Apple has two partners (Luxshare and Inventec) which are the two main assembly partners for its AirPods and HomePods product lines. The report, released in December, tells us that Apple has been telling its manufacturing partners to try to do more work outside of China.

This time, the South China Morning Post (SCMP) claims that Apple’s largest contract manufacturer, Foxconn, has finalized plans to move some iPad and MacBook production from China to Vietnam. It’s no secret that Apple is eager to move production of its products, including the all-important iPhone, out of China.

According to a forecast by Luke Lin, an analyst with the Taiwanese newspaper DigiTimes, quoted in the South China Morning Post, India could produce one in two iPhones in the world by 2027 (currently, 5% of iPhones are produced in India). The forecast is more aggressive than previously made by JPMorgan, which predicts 25% of iPhones (one in four iPhones) will be assembled in India by 2025.

However, the report also says that this is in line with the rapidly increasing share of iPhone shipments in India. iPhone shipments in India have doubled from April to December 2022, compared to the same period in 2021. Rumors also suggest that Apple will start production of the iPhone 15 series simultaneously in China and India.

China’s zero tolerance approach to Covid-19 disrupted production of Apple products, especially iPhones, when Foxconn’s largest assembly plant was closed due to the Covid-19 outbreak last November in Zhengzhou. This led to Apple issuing a rare warning that shipping would be delayed before the holiday season.

These developments have driven supply chain diversification with a shift from China to India and Vietnam. Vietnam’s share in Apple’s MacBook and AirPod manufacturing is also expected to increase as a subcontractor. However, China remains Apple’s main market with strong sales growth. Apple recorded 36% growth in the third quarter of 2022 in China.

Chinese suppliers are already feeling the effects

Apple has frequently cautioned against reading too much into supply chain reports. They’re not always accurate, and Apple’s policy of having multiple vendors whenever possible means that even a confirmed change in one company’s order can be overridden by balance changes in another company’s orders.

That said, there are some indications of the effect of Apple’s ongoing work to move production out of China. One example is Goertek, which has been manufacturing acoustic components for Apple AirPods and other devices in eastern China’s Shandong province for the last two years. The Shenzhen-listed company slashed its 2022 profit estimate by 60%, citing requests from key overseas customers to stop production of smart acoustic devices. Although the company hasn’t named its customers, analysts including Apple analyst Ming-Chi Kuo have identified the device as Apple AirPods Pro.

One consultant said the potential challenge was maintaining quality standards in a more diverse supply chain. Apple always works closely with Chinese suppliers to achieve quality standards. The key question is how long India’s suppliers can comply with these standards, says UK-based supply chain consultant Alan Day. Apple has been working with or developing Chinese suppliers for years and it’s not going to happen overnight. Removing this “perfection engine” catalyst from the market could lead to a shift in standards in the supply chain.

This concern may be exaggerated given that much of Apple’s production outside of China is done by the same Taiwanese or Chinese companies.

iPhone 14, first test?

In September, Apple started assembling the iPhone 14 in India. This is the first time that Apple has moved production from China to India so quickly after launching a new iPhone.

Apple uses facilities at Foxconn Sriperumbudur, India to manufacture these devices. Although Apple has manufactured its flagship iPhones in India in the past, it has usually done well after the initial launch of the phone. It was only in April that the company started manufacturing the iPhone 13 in India and has done the same with other iPhone models, including the iPhone 12 and 11 (one year after release, respectively). of this iPhone version).

We first heard that Apple plans to bridge the gap between the time it takes to shift production from China to India in August, with Apple initially hoping to complete manufacturing of the first iPhone in India by the end of October. Sources familiar with the situation told Bloomberg that Apple and Foxconn had successfully resolved supply chain issues, allowing Apple to move production to India more quickly.

“We are excited to be manufacturing iPhone 14 in India,” an Apple spokesperson said in a statement.

India has attracted investment from Apple’s manufacturing partners Foxconn and Wistron in recent years by offering lucrative grants as New Delhi seeks to turn the country into a manufacturing hub. The presence of foreign production challenges, coupled with abundant labor resources and competitive labor costs, makes India a desirable location, said JP Morgan analysts.

The iPhone supply chain in India has historically only supplied legacy models. Interestingly, Apple has asked EMS suppliers to manufacture iPhone 14/14 Plus models in India in 4Q22, within two to three months of the start of production in mainland China. The much shorter interval implies growing importance of Indian production and the possibility of higher allocation of iPhones to Indian manufacturers in the future, JP Morgan analysts said in a report.

We believe that Apple is only producing iPhone 14/14 Plus models in India at the moment due to more complex alignment of iPhone Pro series camera modules (done by EMS vendors) and higher demand. Local market improvements for the iPhone 14 series (tax savings). We expect volumes to start small in 4Q22 (~1 million units per month, or 5% of total iPhone volume).

As Apple expands its local manufacturing capacity in India, many are hoping it will make its smartphones affordable in the country. The base model iPhone 14, which sells for $799 in the US, costs 79,900 Indian rupees ($980). Meanwhile, the entry-level iPhone Pro Max model costs $1,717 in India compared to $1,099 in the US. This is because of the import taxes and fees applied to these products in India.

Apple started producing iPhones in India in 2017 in a bid to reduce the company’s dependence on China due to the escalating conflict with the United States. It also makes the device more attractive for the Indian market, as local production of the device in India can make it more affordable in the country.

While Apple holds a small market share in India, the iPhone maker has been expanding its investment in the country over the last five years. It opened an online Apple Store in the country in 2020 and has publicly stated that it is working on launching its first physical store in the country.

Apple rival Samsung has identified India as a key global manufacturing hub and has set up one of its largest factories in the country. Chinese smartphone maker Xiaomi, which currently dominates the market, along with rivals Oppo, Vivo and OnePlus also locally assemble a number of their smartphones in the country.

Source: SCMP

And you?

Do you understand why companies are trying to reduce their dependence on China?
Is Apple interested in moving most of its production to India despite the hodgepodge of laws in the country? Why ?
Do you think there’s a better purpose for iPhone creation?

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