This fall, Apple will manufacture some of its flagship iPhones outside of China for the first time, a small but significant change for a company that has built up one of the most complex supply chains. world with the help of Chinese authorities. But the development of the iPhone 14, which is expected to be announced on Wednesday, shows how complicated Apple will actually be to untangle from China.
More than ever, Apple’s Chinese employees and suppliers contributed intricate work and intricate components to the marquee’s 15th year, including aspects of manufacturing design, speakers, and and batteries, according to four people familiar with the new operations and analysts. As a result, the iPhone has gone from a product designed in California and made in China to an innovative product of both countries.
The significant work provided by China reflects the country’s progress over the past decade and the new level of Chinese engineers’ involvement in iPhone development. After the country lured companies to its factories with cheap labor and unparalleled manufacturing capacity, the country’s engineers and suppliers ramped up their supply chains to claim a share. greater than what American companies spend on creating high-tech devices.
The increased responsibilities China assumes over iPhones could challenge Apple’s efforts to reduce its dependence on the country, an increasingly pressing goal amid rising geopolitical tensions. toward Taiwan and growing concerns in Washington about China becoming a technology competitor.
Chinese companies with operations in India will still play an important role in Apple’s plan to produce some iPhones domestic. In Chennai, India, Taiwanese supplier Foxconn, which already manufactures iPhones at factories across China, will lead Indian workers to assemble the device with assistance from neighboring Chinese suppliers. close, including Lingyi iTech, which has subsidiaries that supply chargers and other components for iPhones, according to two people familiar with the plans. China’s BYD is also setting up operations to cut glass for screens, the people said.
“They wanted to diversify, but it was a tough road,” said Gene Munster, managing partner at Loup Ventures, a technology research firm. “They depend on China too much.”
Apple declined to comment. Foxconn, BYD and Lingyi iTech did not immediately respond to requests for comment.
Covid-related disruptions have exacerbated Apple’s predicament. When China closed its borders in 2020, Apple was forced to overhaul its operations and abandon its practice of sending California-based engineers to China to design the assembly process for flagship iPhones. head.
Instead of forcing employees into prolonged quarantines, Apple began empowering and hiring more Chinese engineers in Shenzhen and Shanghai to lead key design elements for its best-selling products, according to the company’s website. four people familiar with the activity.
The company’s product design and production teams have begun holding late-night video calls with partners in Asia. These people said that after the return of travel, Apple tried to encourage its employees to return to China by offering a salary of $1,000 a day during two weeks of quarantine and four weeks of work. While the payout could be as high as $50,000, many engineers were reluctant to go because they weren’t sure how long they would have to quarantine.
In the absence of travel, these people said, the company encouraged employees in Asia to lead meetings that their California counterparts used to lead. Employees are also responsible for selecting a number of future iPhone component suppliers in Asia.
These people said the company is now increasingly tapping into China to provide high-wage workers for these jobs. This year, Apple posted 50% more jobs in China than in the whole of 2020, according to GlobalData, which tracks hiring trends across the tech industry. Many of the new hires are Western-educated Chinese nationals, the people said.
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The change in the way Apple operates has coincided with an increase in the number of Chinese suppliers that Apple uses. More than a decade ago, China contributed little value to iPhone production. It mainly supplies low-wage workers who assemble equipment with components shipped from the United States, Japan, and South Korea. Works make up about $6 – or 3.6% – of an iPhone’s value, according to a study by Yuqing Xinga professor of economics at the National Institute for Graduate Policy Studies in Tokyo.
Gradually, China nurtured homegrown suppliers and began to replace Apple suppliers from around the world. Chinese companies started making speakers, cutting glass, supplying batteries and manufacturing camera modules. According to Mr. Xing, its suppliers now account for more than 25% of the value of an iPhone.
Dan Wang, an analyst with Gavekal Dragonomics, an independent economic research firm, said the gains were testament to China’s expanding ownership of the smartphone supply chain. That trend is not slowing down, he said.
Through most of the pandemic, China has rewarded Apple’s reliance on manufacturing in the country. Stable manufacturing activity – even if other countries shut down between 2020 and 2021 – has helped Apple increase its smartphone market share and sell the most iPhones ever, according to analysts. To date, according to analysts, a remarkable achievement for a decades-old electronic device has gone from introducing revolutionary innovations to improving step by step.
This year, analysts expect Apple to release four iPhones with smaller notch for Face ID than previous models. It will launch the phone a week earlier than usual, which could boost revenue in the current quarter by adding another week of sales. It is also expected to increase the price of the iPhone 14 Pro models by $100 to over $1,600 to offset the higher cost of some components.
Apple expects the iPhone 14 to build on the success of the past years. According to financial firm Susquehanna International Group, while other smartphone makers are cutting output as the global economy slows, Apple has urged its suppliers to produce more phones. compared to a year ago, according to Susquehanna International Group, a financial firm.
The surge in manufacturing orders is testament to the resilience of Apple’s wealthy customers, whose pockets allow them to buy high-priced smartphones despite rising inflation and a recession. economic recession.
“There is a huge wealth gap in consumer spending in the smartphone industry,” said Wayne Lam, a technology analyst with CCS Insight. “Apple is safe compared to the competition.”
As the media and employees gather Wednesday at the company’s headquarters in Cupertino, California, for a product launch, Apple will be emphasizing the phone’s capabilities — not how it’s made. . The only signs of changes to that process will show up on flights to and from nearby San Francisco International Airport.
Apple used to spend $150 million a year on flights with United Airlines, under a United advertising banner. Former employees recounted that before the pandemic, they had boarded flights to Shanghai and Hong Kong, with business class seats filled with people who had worked at Apple.
Now, United no longer offers direct flights from San Francisco to Hong Kong. It flies non-stop to Shanghai four days a week.
