Wedbush: Moving 15% of Apple production ex-China would take 2-3 years

From a note to clients by analyst Daniel Ives that landed on my desktop Wednesday:

We believe realistically in a best case scenario Apple would be able to move 5%-7% of its iPhone production likely to India in the next 12 to 18 months. Moving 15% of its iPhone production from China to other regions (India and Vietnam would be top candidates) would take at least 2-3 years in our opinion given the complexity and logistics involved in such a gargauntuan endeavor and clearly have its share of risks (e.g., supply chain disruption, higher costs).

We believe this is all a poker game and Apple will not diversify production out of China overnight and certainly a long-term US/China trade deal is key for Cook & Co. to sleep well at night. The jury is still out on the time table on these strategic moves for Apple, but ultimately with 1.4 million Chinese employed by the company Cook and Cupertino have some big decisions ahead.

Maintains Outperform rating and $235 price target.

My take: The poker game metaphor works for me.

See also: These 5 countries will get more of Apple’s manufacturing business, says Nikkei

7 Comments

  1. Jerry W Doyle said:
    In an Apple China press release dated March 17, 2017 Apple denoted it has created and supported 4.8 million jobs in China, including 1.8 million iOS app developers and other iOS-related jobs.

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    June 19, 2019
    • David Drinkwater said:
      4.8 million jobs to China is like saying you employed East Podunk Heights. It’s roughy 0.3% of their population. Those jobs may have significant economic impacts, but the butts in the seats are not what matters in this equation. It’s the $$$/RMB.

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      June 19, 2019
  2. Bruce Oran said:
    According to WSJ, Trump and Xi are scheduled to hold trade talks in Japan next week. Perhaps this item is a gift from Cook to Trump as my view is that willingness and ability of Apple to move a good chunk of its manufacturing out of China could only strengthen Trumps hand (keeping with poker analogy). Given the fact that Cook (at least to the outside world) appears to have a relationship with Trump and perhaps even his ear (he still gets invited to the WH), it only helps Trump’s position if Xi believes Trump has some influence with Cook and visa-versa.

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    June 19, 2019
  3. T R said:
    See comment posted with the previous related article. There was concerted international teamwork implementing a strategy to diversify trade power, away from China.

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    June 19, 2019
  4. Gregg Thurman said:
    I posted this on Cult of Mac this morning.

    “He (Ives) 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.”

    Production of iPhones in India is going to happen, despite any headwinds in China, just to get regulatory permission to open company-owned Stores. It is already happening with older iPhone models, with a smattering (low volume) of newer models. Increasing Indian production capacity to 7% over the next 12 months is a no brainer. Increasing it to 15% over the following 12 months would be a challenge, but nowhere near the challenge of setting up in Mexico, Vietnam, Indonesia or Malaysia.

    This would make the Indian government VERY happy and more receptive to more exemptions from India’s archaic anti-business/import rules. On the other hand, a reduction of up to 15% of Chinese iPhone production over a 2 year period would hardly be felt in China. Certainly not enough to enact retaliatory measures.

    With India firmly established as an alternative iPhone production locale, greater production, that exceeds US consumption, (based on cost, not trade issues) could be shifted from China (where costs are continuing to rise) to India.

    Further, I don’t see the transition to 5G as an obstacle in such a shift. The first two years of 5G iPhone (about 55% – 65% total iPhones sold annually) production would remain in China, with first-year iPhone production shift being older iPhone models (like those already being produced in India). The need to shift 5G production out of China before 2021 is very low. After that, due to the build-up of Indian supply chains, a 5G move to India would be fairly easy.

    [There were slight grammatical/spelling changes made on this version due to Grammarly not working on the Cult of Mac site.}

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    June 20, 2019
  5. Gregg Thurman said:
    Adding to the above:

    About 35% to 45% of annual iPhone sales are of older models (depending on consumer response to new models). Moving half of that to India only requires expanding current production capacity. The infrastructure and supply chain to produce older iPhones already exist in India.

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    June 20, 2019

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