What's holding up Apple's move out of China?

The limiting factor, according to a deep dive in Saturday's Wall Street Journal, is the capability and the manpower to do "NPI."

From Yang Jie and Aaron Tilley's "Apple Makes Plans to Move Production Out of China":

In recent weeks, Apple Inc. has accelerated plans to shift some of its production outside China, long the dominant country in the supply chain that built the world’s most valuable company, say people involved in the discussions. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, they say, and looking to reduce dependence on Taiwanese assemblers led by Foxconn Technology Group.

Coming after a year of events that weakened China’s status as a stable manufacturing center, the upheaval means Apple no longer feels comfortable having so much of its business tied up in one place, according to analysts and people in the Apple supply chain.

“In the past, people didn’t pay attention to concentration risks,” said Alan Yeung, a former U.S. executive for Foxconn. “Free trade was the norm and things were very predictable. Now we’ve entered a new world.”

One response, say the people involved in Apple’s supply chain, is to draw from a bigger pool of assemblers—even if those companies are themselves based in China. Two Chinese companies that are in line to get more Apple business, they say, are Luxshare Precision Industry Co. and Wingtech Technology Co.

On calls with investors earlier this year, Luxshare executives said some consumer-electronics clients, which they didn’t name, were worried about Chinese supply-chain snafus caused by Covid-prevention measures, power shortages and other issues. They said these clients wanted Luxshare to help them do more work outside China.

The executives referred to what is known as new product introduction, or NPI, when Apple assigns teams to work with contractors in translating its product blueprints and prototypes into a detailed manufacturing plan... Unless places like India and Vietnam can do NPI too, they will remain stuck playing second fiddle, say supply-chain specialists. However, the slowing global economy and slowing hiring at Apple have made it hard for the tech giant to allocate personnel for NPI work with new suppliers and new countries, said some of the people in the discussions.

My take: Good reporting. Takes us closer to the level of Apple blueprints and manufacturing plans than we usually get.

15 Comments

  1. Jerry Doyle said:
    I would not think India or Vietnam can do NPI at this stage for Apple. India and Vietnam are in the embryonic stages of manufacturing assembly. That is my understanding.

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    December 3, 2022
  2. Only a few years ago a significant number of people did not carry a mobile. If they did, it was a cheap flip phone, about all they could afford. Now a hand-me-down Android and a Free Wi-Fi connection gives an enterprising or creative soul a chance at success.
    Myopic, most don’t really see what is going on in Hanoi, Accra, or near Chennai. Throngs of young people need training before they enter the workforce. PR statements and BBC glimpses don’t cut it with me. Increases in income, per capita, and new construction rates only give me a general idea. World Bank data. I need to see progress.
    Most people still live in housing readers here would not tolerate. Now they have smartphones. Many are just now starting to consume through their phones like we do.
    Phones are bank, weather forecaster/news, farmers market, social media, casino, and probably 10 other purposes, for even the poorest populations. The global market for services & products over a wireless connection is always skyrocketing. Somebody, somewhere, just found a great price on a replacement iPhone charger. The goat chewed up another one. A single mom just landed a new position with better pay.
    The global trend towards mobile services is the primary reason I invested all my money in Apple in 2005. It still is. It’s written in a proposal my broker suggested I write up.
    I was researching the rapid rise of mobile banking using mPesa and other cashless services in sub Saharan Africa back then.
    The App Store is the crown jewel. Content, Apple TV+, Arcade, or AR images from the Ingenuity helicopter on Mars (NASA AR app) or Formula 1 races. AR headsets, iCars, and iPhone 15 aside, what’s in the box is where the margins are. Grow that market, inside the mythical Apple walled garden, and you’ll reap a bountiful harvest.
    For the past 3 years, that ongoing investment in Apple, up 3,000% and growing strong, has supported me and contributed to an academy in Ghana. I need my pension to last at least 30 years, Dad almost made 93. School gets that ever-growing income stream after I don’t need it.
    I’m going to Africa to see if I can I can expand my high school’s curriculum to include solar panel installation, mobile app development, cell tower maintenance, plumbing, electrical, rural broadband installation, organic farming, beekeeping, First-Aid, and other relevant courses.
    All far more expensive classes to staff & equip than K-12. Many of the classes will occur in the field.
    Higher, long term goals include reduction in migration to the cities and to the north, Europe.
    My personal goal is to add a technical school to encourage young adults to pick a trade.
    Now a significant number of young people are benefiting from my investments, in weeks even more will. The new 4 story concrete structure is almost done. Let’s see what our Apple gains can achieve.

    12
    December 3, 2022
    • Suggestions for other course topics are always welcome! Perhaps iPad or iPhone screen repair?

      3
      December 3, 2022
    • Steven Philips said:
      EMT? Though medical education seems a different and maybe more involved curriculum. Kudos for what you’re doing. I think Africa should get more focus and corporate investment.

      1
      December 3, 2022
  3. Bart Yee said:
    I wanted to touch on the action in Boeing (BA) stock yesterday that Robert pointed out because of a potential major purchase by United Airlines for 100+ Boeing 787 Dreamliners. That’s a big deal and kudos to United for stepping up and strongly considering that purchase.

    Let’s break it down:
    The quantity purchase price of a Boeing 787 is roughly $125M-$145M, a 53%-45% discount from the “list” price of $264M. I’m assuming it will take over 5+ years to produce that many aircraft and deliver them. The total for 100 aircraft would be $12.5-$14.5 billion. That’s big money, no wonder Boeing stock went up 4% and is up 24% over the past month as aircraft orders and deliveries have hit their targets.

    Now consider Apple and just iPhones for this quarter. Something like 80 to potentially 89 million people will put in their orders for iPhones just this quarter. At the low end, average sales price would be around $825, at the high end, conservatively about $1075 given how the Pro Models are affecting the mix.

    But due to production constraints unique to this quarter, Apple hasn’t yet made enough to fulfill every order. Let’s choose that “only” 74M iPhones sell and get delivered this quarter, a drop of 17% from 89M initial units before middling demand of the base & Plus models was revealed, or 10.8% drop from the revised 83M units before lockdowns started, and the ASP is $950.

    That would be a quarterly iPhone revenue of $70.3 billion in Q1 2023. $70.3 freaking BILLION in revenue, in just one hugely challenging quarter! NB, that would be a modest -1.86% drop from an exceptional record $71.63B YOY in Q1 2022, not an unthinkable outcome. And $70.3B would “only” be the 2nd highest iPhone quarterly record ever!!

    And yet, not a ripple in AAPL stock.

    7
    December 3, 2022
    • Bart Yee said:
      Here’s my iPhone estimates in a supply constrained quarter:

      Q1 2023 iPhone mix
      31% 14 Pro Max ASP $1175
      27% 14 Pro ASP $1075
      12% 14 ASP $875
      6% 14 Plus ASP $950

      Of the 24% left
      13% 13 ASP $750
      3% 13 Mini ASP $625
      4% 12 ASP $650
      4% SE 2022 ASP $450

      At 74M units
      14 PM 22.94M x $1150 = $26.38B
      14 Pro 19.98M x $1050 = $20.98B
      14 8.8M x $875 = $7.7B
      14 Plus 4.44M x $950 = $4.22B
      13 9.62M x $750 = $7.22B
      13 mini 2.22M x $625 = $1.39B
      12 2.96M x $650 = $1.92B
      SE 2022 2.96M x $450 = $1.33B

      Total revenue = $71.14B

      5
      December 3, 2022
      • Bart Yee said:
        BTW, those above estimates worked out to an iPhone ASP of $961, not far off my suggestion of $950. Here’s the crazy thing, there’s going to be plenty of expectations that the iPhone 15 will be a major revision, the A17 CPU (and M3) will be built on TSMC’s 2nd generation N3E likely to be in the Pro Models, and the current A16 will populate the base models, and yet another year of pent up demand, possible economic recovery in key markets, and hopefully no significant production disruptions. This leads one to suggest or expect a strong Q1 2024 quarter YOY with a somewhat light iPhone compare.

        0
        December 4, 2022
        • Gregg Thurman said:
          I continue to believe there will be a convergence of Apple developed technologies that will launch a major new product and/or service in 2025.

          Why else would Apple continue poring money into its industry leading silicon (3 – 5 years ahead of competing silicon)? Apple silicon is already far more powerful than it needs to be to power today’s Apple softwares.

          What could possibly need the power that an A 17/18 or M 3/4 could provide?

          0
          December 4, 2022
    • David Emery said:
      I like the Dreamliner, but I still have serious concerns about Dreamliner reliability (and safety.) I sure hope Boeing has fixed the cultural failures that led not only to 737 MAX but also Dreamliner issues.

      And I hope Apple never falls into the “business overriding engineering” problems that bleeped up Boeing so badly. (https://www.amazon.com/Flying-Blind-Tragedy-Fall-Boeing-ebook/dp/B08P98854S )

      3
      December 3, 2022
    • Robert Paul Leitao said:
      Bart: Nice comparison! At a revenue rate, on average, of over one billion dollars per day, attempting to capture a “picture” of Apple’s revenue performance by confining it to one fiscal quarter is like attempting to capture a clear image of a fast-moving interstellar object on a cloudy evening in Los Angeles using an old Kodak Instamatic camera while standing under a street light.

      3
      December 3, 2022
      • Romeo A Esparrago Jr said:
        What an analogy. That I get.
        I just purchased a refurb Nikon CoolPix P1000 camera to try and address that.

        1
        December 3, 2022
    • Mark Visnic said:
      @Bart

      Yet Boeing is trading at 64x earnings and 22x EBITDA in CY 2023 vs 24x and 18x for AAPL in FY 2023.

      And Procter & Gamble at 26x and 18.5x.

      0
      December 4, 2022
  4. John Butt said:
    There are more Asian countries that are stable and well into Manufacturing. When I was in Marconi we moved manufacturing of fibre optic telecommunications equipment from the world class failure of Italian manufacturing under world class designers in Italy, to Malaysia.
    Product design stayed top class and faults just vanished – in months.

    8
    December 3, 2022

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