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

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Tim Cook meets with a person working on the production line building iPhones.
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 focus on the United States.

Foxconn chairman Young Liu said the manufacturing giant now operates 30% of its capacity outside China, up from 25% last June. In recent years, the company began moving manufacturing to other regions such as Southeast Asia to avoid possible tariffs on Chinese goods headed to the United States.

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 falls in line 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.

Bisecting its manufacturing in this way won’t solve all Apple’s problems with building devices in China. However, it could help Cupertino escape some of the repercussions of the still-rumbling U.S. trade war with China. Last year, Apple’s share price got hammered hard by reports that tariffs on imported iPhones could lead to substantially higher prices for the handsets.

Manufacturing iPhones for the Chinese market inside China also would 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 Foxconn could manufacture iPhones outside China if required.

Foxconn and Apple: A long relationship

Foxconn reported a net income of $778 million for the quarter that ended in June. Increased demand for iPads and MacBooks, presumably due to people working from home during the COVID-19 pandemic, reportedly drove the increase.

Liu said his company’s revenue likely will fall next quarter due to the delayed launch of 2020 iPhones. Apple generates around half of Foxconn’s overall sales.

Foxconn started producing iPhones for Apple back in 2007, when the smartphone launched. The Chinese manufacturer began building other Apple products, including the iMac, in 2000.

Source: Bloomberg