iPhone eventSource: Apple

What you need to know

  • Apple's main supplier is making huge changes to its operation.
  • Foxconn says it will split its supply chain between the Chinese market and the U.S.
  • It is gradually adding capacity outside of China.

Major Apple supplier Foxconn says it is making huge changes to its supply chain, and that China's days as "a factory to the world" are finished.

According to Bloomberg:

A key supplier to Apple Inc. and a dozen other tech giants plan to split its supply chain between the Chinese market and the U.S., declaring that China's time as factory to the world is finished because of the trade war.

The company's chair Young Liu said it was "gradually adding more capacity outside of China" and that the proportion of offshore manufacturing had risen from 25% to 30%. Foxconn says it has more plans to move manufacturing to Southeast Asia and other regions, in order to avoid tariffs driven up by the US-China trade war. Liu further noted that in whichever country it operated, there would be a "manufacturing ecosystem in each" and that China's "days as the world's factory are done." Foxconn has already invested over a billion dollars in India.

As the report notes, escalating trade tension between the United States and China has prompted some electronics makers to diversify production outside of China. Notably, Apple and its manufacturing partners have invested heavily in India, encouraged by government subsidies. It recently emerged Apple was making the iPhone 11 in the country for its Indian market, the first time an Apple flagship has been made outside of China.

The COVID-19 pandemic has also highlighted a glaring weakness in the concentrated reliance on China as a manufacturing base for many companies, further expediting the move.

Foxconn made the announcement during its most recent earnings call, in which it reported strong second-quarter profits far beyond analysts' expectations.