Major electronics manufacturers in Apple Inc’s supply chain are expected to speed up shifting their production lines out of China after the country’s COVID-19 restrictions caused frequent disruptions, Yuanta Securities Investment Consulting Co said on Friday.
However, the relocation of the supply chain is a project that will take many years to complete, not to mention that China remains a big market for Apple. In addition, the migration of the supply chain mainly refers to the relocation of the US firm’s assemblers, not the shift of production sites of its components suppliers, Yuanta said.
The first round of shifting production would involve handsets, earphones and smartwatches, as Apple aims to gradually increase manufacturing outside of China due to intensifying geopolitical tensions, Yuanta said in a research note.
The production of iPhones, which requires highly skilled labour, would be shifted to India, while the production of other products would be moved to Vietnam and Thailand, it said.
“We expect the assembly share of AirPods, Apple Watches, iPads, iPhones and MacBooks in non-China regions to rise from 40 per cent, 0 per cent, 3 per cent, 3 per cent and 0 per cent in 2022 to 70 per cent, 25 per cent, 25 per cent, 20 per cent and 10 per cent in 2025 respectively,” Yuanta said.
Major assemblers of Apple products include Hon Hai Precision Industry Co, Pegatron Corp, Wistron Corp, Luxshare Precision Industry Co and Tata Group for phones; Hon Hai, Compal Electronics Inc, Kinpo Group and BYD Co for iPads; and Quanta Computer Inc, Hon Hai and Wingtech Technology Co for MacBooks.
Hon Hai, Luxshare, Compal and Kinpo are also responsible for Apple Watch assembly, while Luxshare and GoerTek Inc are major AirPod suppliers, Yuanta said.
Apple’s component suppliers have yet to start plans to move production away from China, as the world’s second-largest economy remains an important market for the electronics industry.
That has led electronics assemblers to tentatively source components via imports, but this is expected to cause assemblers’ production costs to rise 10 to 20 per cent as they move away from China, the note said.
Yuanta identified India as a battlefield for iPhone production, as assemblers speed up migration from China to the world’s second-most populous nation, which is offering generous subsidies for electronics makers.
Taiwan’s Hon Hai, Pegatron and Wistron have set up plants in India.
For those electronics makers, the costs of importing expensive components could be partially offset by India’s cheaper land and labour costs, compared with China, Yuanta said.
However, the companies’ plants in India are still expected to see 5 to 10 per cent increase in operating costs, compared with increases of 10 to 20 per cent in Thailand and 5 to 10 per cent in Vietnam, Yuanta added.
“In the long term, the capacity from India plants will contribute 40-45 per cent of total Apple shipments, mainly supplying North America and India,” Yuanta said. “If domestic market demand grows strongly in India, iPhone shipments could also return to setting new highs.”
India accounts for just 3 per cent of global iPhone consumption, far behind major markets such as the US, Europe, Japan and China, it added.
