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Apple moves closer to China despite supply chain shifts

Written by Nikkei Asia Published on   5 mins read

Japan, Taiwan, and US supplier numbers dip as the iPhone maker expands in Southeast Asia.

Apple is deepening its ties with China even as it further expands production in Southeast Asia and India, highlighting the balancing act the iPhone maker is striking between politics and business.

Apple increased its China-headquartered suppliers and Chinese manufacturing sites in 2023 while using fewer suppliers from Taiwan, the US, Japan, and South Korea, a Nikkei Asia analysis of Apple’s latest official list of suppliers shows.

Apple releases an official list of suppliers for all its products almost every year. The latest edition covers 187 companies and represents 98% of the company’s procurement for fiscal 2023.

Chinese suppliers have formed the largest camp of Apple suppliers since 2020, and their number increased to 52 last year from 48 in 2022. The number of manufacturing or development facilities in China—including those owned by domestic and foreign companies—grew by 10 to 286.

Around 84% of Apple’s top 187 suppliers had facilities in China last year, according to Apple data analyzed by Nikkei Asia.

Its deeper ties with China come as Apple also accelerates its supply chain shift to Southeast Asia amid the ongoing US-China tech war.

The number of Apple suppliers operating in Vietnam surged 40% to 35 last year, while the number in Thailand grew by about a third to 24. The number of suppliers in India remained at 14, with local conglomerate Tata Group entering the list of top suppliers for the first time. The group supplies iPhone casings, and its presence in the supply chain is expected to grow now that it has acquired an iPhone assembly plant in Bangalore from Taiwan’s Wistron.

But this growing footprint in India and Southeast Asia does not necessarily translate to a reduced reliance on China.

Nikkei Asia’s analysis shows that around 37% of the 35 suppliers in Vietnam are from China and Hong Kong, including AirPods assemblers Luxshare and Goertek, and iPad assembler BYD. All three have expanded their production capacity in the country to serve Apple.

Other Chinese suppliers entered the list of top Apple suppliers for the first time last year, including San’an Optoelectronics, which produces LEDs and gallium nitride, Baoji Titanium Industry, a Shaanxi-headquartered, state-backed provider of titanium and nickel, and Jiuquan Iron & Steel, a state-owned metal company based in Gansu.

Taiwanese suppliers retained their status as the second-largest camp in the Apple supply chain, followed by those from the US, Japan and South Korea.

Apple’s strategy contrasts with that of American peers like Dell, which aims to phase out all China-built chips and components, and HP, which has told suppliers to build capacity in Southeast Asia and Mexico.

More than perhaps any other US company, Apple is walking a tightrope between Washington and Beijing. Not only is a significant portion of its supply chain in the Asian country, Apple’s revenue from Greater China—the world’s biggest consumer electronics market—still accounted for 17% of its total revenue in the December quarter.

Apple CEO Tim Cook has recently been playing the role of ambassador for the American tech titan’s operations in the Asia Pacific.

In March, he embarked on a week-long visit to China during which he met not only with executives from key suppliers like iPad assembler BYD and glass materials maker Lens Technology but also with high-ranking Chinese officials. He celebrated the opening of a flagship store in Shanghai and announced the expansion of Apple’s R&D center there. Cook also highlighted the role China plays in Apple’s success, saying, “There’s no supply chain in the world that’s more critical to us than China,” according to state-owned media China Daily.

Apple has faced mounting geopolitical woes in China. Last year, foreign ministry spokesperson Mao Ning said iPhones could have security concerns despite not publicly confirming that Chinese central and government agencies have blocked the use of the handsets.

Huawei, Apple’s top rival in China’s premium handset segment, last week introduced its latest flagship Pura 70 series, following its surprise release of the Mate 60 Pro series—made with in-house chips—in the second half of 2023. Huawei’s comeback is likely to pressure Apple as well as high-end phone rivals Oppo and Vivo in China. Huawei’s shipments in its home market in the first quarter of 2024 jumped 69.7% from a year earlier, while Apple’s plunged 19.1%, Counterpoint data shows.

Globally, Apple’s shipments in the first quarter of this year fell nearly 10%, IDC data shows, a deeper year-on-year decline than what peers like Samsung and Xiaomi experienced.

A few weeks after his China visit, Cook continued his diplomatic turn with a trip through Southeast Asia, meeting with Vietnamese Prime Minister Pham Minh Chinh, Indonesian President Joko Widodo, and Lawrence Wong, Singapore’s deputy prime minister and prime minister-in-waiting.

Apple said it will increase spending on suppliers in Vietnam, consider manufacturing in Indonesia and invest more than USD 250 million in its Singapore campus to “provide space for growth and new roles in artificial intelligence and other key functions.”

Karen Ma Li-Yen, director of emerging regions collaboration at IEK Consulting, said Apple will likely continue to work with Chinese suppliers because it hopes to strike a geopolitical balance and because these companies can provide cost-effective solutions.

“It has some geopolitical considerations,” Ma said, “and it has to continue to work with China-based suppliers, as Huawei is showing strong signs of a comeback. If Apple hopes to continue to secure the China market, it has to share some benefits with Chinese suppliers. [But] it’s not all related to geopolitical factors. A lot of Chinese suppliers can offer quality components at cost-efficient prices. It’s also a commercial decision.”

Ma, also an expert on Southeast Asia, said Apple’s suppliers are not likely to abandon production in China but will ramp up production outside the country. “Vietnam and Thailand are currently the most popular destinations for tech companies and their suppliers,” Ma said. “However, Vietnam has recently experienced a surge in companies moving in, leading to electricity and labor constraints. This has made Thailand an increasingly attractive alternative.”

India, meanwhile, is the world’s most populous nation and a massive market for electronics makers, but investment is not yet ramping up. In terms of foreign investment, Ma said, only device assemblers are increasing their production footprint in the country, while many components and electronics module makers are still in wait-and-see mode.

“Apple has been pushing component suppliers really hard to come to India,” said an executive in the iPhone supply chain whose company has invested in South Asia. “But the force of pulling is not enough to overcome the challenges and complexity suppliers will face in the country. It will take longer than we first thought to have a new ecosystem in India.”

Annabelle Hsu, an IDC tech analyst specializing in supply chains has noticed the same dynamic. “Overall,” Hsu said, “China still has the world’s most complete supply chain for laptop computers and smartphones. China remains a hub for key component and parts suppliers for laptops and phones. However, while diversification is a growing global trend, shifting supply chains is a complex process that takes time.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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