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Apple intends to reduce its reliance on suppliers working in China, according to a report, with the iPhone maker telling some contract manufacturers it wants to expand production outside the country.
Apple’s supply chain in China faces regular COVID-19 lockdowns, which impose strict rules that may impact the workforce of its contract partners. With the continuing problems caused by the blockages, Apple is now hoping that supply partners in other parts of the world can pick up the slack.
The company has reportedly told some suppliers it wants to increase production outside of China, sources report. the wall street journal. Those involved in the talks said Beijing’s strict policies regarding COVID-19 topped a list of reasons to look elsewhere.
Along with the lockdowns, this includes strict travel restrictions that have affected Apple’s ability to send engineers to its suppliers, forcing it to adopt alternative work practices.
Apple also believes COVID-related disruptions and supply constraints will affect its results. In April’s quarterly results, the company forecast third-quarter revenue of $4 billion to $8 billion due to the issues.
The nature of China’s authoritarian government, including its rocky relationship with the United States, is also a potential problem for Apple. Future trade wars could hurt Apple’s ability to rely on the country for much of its production.
Apple has apparently been considering moving production out of China for a while as COVID makes the topic a more pressing issue for the company.
Apple already has operations in India and Vietnam for a small portion of its total production, but each country is being considered for further expansion to negate a China-centric supply chain. Of the two, people familiar with Apple’s manufacturing plans say the company is leaning towards India as the closest thing to China, due to population size and relatively low costs.
However, frosty China-India relations mean Chinese companies will find it difficult to set up shop in India, analysts and suppliers told the report. Meanwhile, the existing smartphone manufacturing hub in Vietnam is seen as a more attractive proposition for vendors.
Apple is already telling its suppliers to work more on its new product plans outside of China. Sources say that if manufacturing partners agree to work outside of China, India and Vietnam’s existing limited production could expand into full-scale production hubs, although this may require a lot of investment.