Wedbush analyst Daniel Ives thinks this could be a bad time for Apple to shake up its supply chain by moving iPhone manufacturing out of China.
In a note to clients, Ives singles out the first 5G iPhone and the launch of Apple TV+ as reasons why Apple should seek to minimize stress right now. In other words, Apple execs could do without the “gargantuan” headache that shifting around its supply chain would involve.
He writes:
“To this point, especially with 5G smartphones set to be released by Apple in late 2020 in our opinion the last thing Apple wants to do now is significantly disrupt the supply chain and Foxconn factory logistics with an iPhone location overhaul over the next year.
With 350 million iPhones in the window of an upgrade opportunity over the next 12 to 18 months and Cook juggling a number of other balls (launch of streaming video service, potential M&A on content), this is a critical time for Apple to execute despite China swirls both on the demand and supply side of the equation.”
Ives is responding to a recent report suggesting that Apple is asking its main suppliers to evaluate the cost of shifting 15% to 30% of their production from China to Southeast Asia. This is partly in response to the burgeoning U.S. trade war with China. However, it’s also the result of increased costs in China and the risks of centralizing production in one country.
Apple bet the farm on manufacturing in China
Ives writes that Apple has “bet the farm” on manufacturing in China. The country, he says, is the “hearts and lungs of the Cupertino ecosystem.”
He goes on to note that moving 5% to 7% of manufacturing out of China (to a place like India) could be achieved in between one year and 18 months. Moving 15% of iPhone production from China to other regions would take around two or three years. Such moves also would come with plenty of risks.
Ives isn’t wrong about any of this. Switching companies for a few components is a big enough challenge. Moving countries, especially away from a country like China with the necessary manufacturing infrastructure, is a major headache.
But Apple doesn’t necessarily have a whole lot of options. And while the launch of new streaming services and a proposed 5G iPhone in 2020 make this a bad time, when exactly is going to be a good time for Apple to pull the trigger?
