Analysis: Apple supply chain data shows receding exposure to China as risks mount - Reuters

SHANGHAI, Nov 30 (Reuters) - Apple Inc's (AAPL.O) wide vulnerability to Chinese manufacturing, notable some for its debased costs and rising risks, has receded since the COVID-19 pandemic began, institution proviso concatenation information shows.

With the world's biggest iPhone factory, operated successful cardinal China by Foxconn (2317.TW), battling accumulation shortfalls and labour unrest spurred mostly by Beijing's harsh microorganism containment policies, analysts expect the risks - and Apple's retreat - to accelerate.

A Reuters investigation of Apple's proviso concatenation information shows China's prominence successful the company's planetary manufacturing is declining: In the 5 years to 2019, China was the superior determination of 44% to 47% of its suppliers' accumulation sites, but that fell to 41% successful 2020, and 36% successful 2021.

Apple did not reply to a petition for comment.

The information shows however a diversification thrust by Apple and its suppliers, with investments successful India and Vietnam and accrued procurement from Taiwan, the United States and elsewhere, is reshaping the planetary proviso structure, though analysts and academics accidental it volition stay heavy exposed to China for galore years to come.

"The China proviso concatenation is not going to evaporate overnight," said Eli Friedman, an subordinate prof astatine Cornell University who studies labour successful China.

"Decoupling is conscionable not realistic for these companies for the clip being," helium said, though helium expected diversification to accelerate.

The attraction of suppliers successful China, the tract of astir accumulation by Foxconn which accounts for 70% of iPhones made globally, has been a cardinal diagnostic for Apple, the world's astir profitable smartphone vendor.

But the strategy is shifting, driven not conscionable by China's COVID-related lockdowns and restrictions, but by rising commercialized and geopolitical tensions betwixt Beijing and Washington that airs imaginable semipermanent risks.

Foxconn is stepping up its expansion successful India, with a program to quadruple the workforce astatine its iPhone mill implicit 2 years, authorities officials with cognition of the substance told Reuters earlier this month.

J.P.Morgan expects Apple to move astir 5% of iPhone 14 accumulation to India from precocious this twelvemonth and to marque 1 successful 4 iPhones successful India by 2025, and estimates that astir 25% of each Apple products, including Mac PCs, iPads, Apple Watches and AirPods, volition beryllium manufactured extracurricular China by 2025 versus 5% now.

The Apple supplier information to 2021, however, shows nary locations truthful acold that basal retired arsenic important gainers to lucifer China's decline, according to the Reuters analysis.

The United States roseate the astir to 10.7% successful 2021 from 7.2% successful 2019, followed by Taiwan with an summation to 9.5% from 6.7%. India was inactive a comparatively insignificant presence, rising to 1.5% from little than 1%, portion Vietnam expanded to 3.7% from 2.2%.

"Vietnam and India are not China. They can't nutrient astatine that scale, astatine the prime and with the turnaround time, with the reliability of infrastructure," said Cornell University's Friedman.

Apple's yearly information covers much than 600 locations among its apical suppliers, which correspond 98% of Apple's nonstop spending. Apple does not disclose however overmuch it spends with each supplier, and those connected the database tin alteration each twelvemonth arsenic antithetic companies marque the cutoff among Apple's thousands of suppliers.

They see declaration manufacturers that assemble iPhones, iPads, watches and wireless headphones, arsenic good arsenic suppliers of chips, glass, aluminium casings, cables, circuit boards and different components.

While Apple's displacement from China is progressively evident, including successful its ain proviso concatenation data, truthful excessively are the risks from the attraction of operations there.

The labour issues astatine Foxconn's China works are owed successful ample portion to the demands of Beijing's COVID containment policy, which necessitate that workers beryllium isolated from the wider satellite successful closed-loop systems to support mill lines operating.

The unrest has attracted the attraction of investors, who are conscious of the quality rights aspects arsenic good arsenic accumulation targets.

"The important happening is that the institution implements these orders successful a mode which respects people's rights," said Pia Gisgard, caput of sustainability and governance astatine Swedbank Robur, which held Apple shares worthy astir $1.3 cardinal arsenic of end-September according to Refinitiv data.

Reporting by Josh Horwitz; Additional reporting by Sarah Wu successful Taipei and Simon Jessop successful London; Editing by Miyoung Kim and Edmund Klamann

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