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Apple Inc.'s trust in China is increasingly looking for its biggest handicap.
US President Donald Trump "ordered" American companies to search for alternatives to manufacturing in China this weekend, which Apple is not prepared for, according to analyst Daniel Ives of Wedbush Securities Inc.
According to Ives, Apple could remove 5-7 percent of iPhone production from China within 18 months. The company needs three years to reach 20% of its revenue, which is still less than the 25% of iPhone production that Apple needs for the domestic US market. American tariffs on goods from China would therefore directly affect Apple's largest earners.
Ives refers to Trump's recent remarks to China in the title of his report as "a hit for Cupertino".
Apple's main assembly partner, Foxconn Technology Group, has claimed that it has the capacity to build all of the US-based iPhones of the Cupertino company outside of China. However, all indications are that the provision would take a lot of time and money. The share price of Apple experienced on Friday after the recent customs announcements two big successes.
Following the President's pronouncements, tweets followed hours later declaring that the US would increase the rate of existing and upcoming tariffs on Chinese goods. Trump's moves were in response to a previous announcement that China intended to impose tariffs on US imports of $ 75 billion.
Connoisseurs of the iPhone production said it was nearly impossible to relocate the production of Apple's well-known device on a wholesale basis One point that Apple CEO Tim Cook has also taken up in public is the difficulty of being qualified elsewhere To find workers. The challenges of replicating the complex production lines and the required infrastructure are also major hurdles.
There may also be less purely economic reasons to hold onto the world's second largest economy. Apple and its army of contract manufacturers, led by Foxconn, are together China's largest private employer, providing jobs for millions of people. A reduced Apple presence could have a significant impact on the local labor market and put Beijing in the wrong direction. Chinese officials see a significant risk to stability in a slowing economy. The government has shown a penchant for cracking down on foreign companies that did not like it.
And Apple must defend the smartphone leader Huawei Technologies Co. and regain consumers in China, its largest market after the US.
What Bloomberg News
Apple could see an additional margin pressure of 71 basis points if President Donald Trump complies with his threat to increase the expected tariffs on US imports from China as the country's trade war escalates.
– Analyst John Butler and Boyoung KimClick here for research
Read more: China's Online Army Shows Foreign Brands Responsible
While Apple has at least asked some suppliers for production proposals outside of China there There is no indication that the company Cupertino is preparing for a large-scale migration.
In one case, a fitter proposed a location outside of China, but Apple declined and the supplier eventually expanded to China. GoerTek's recent efforts to relocate part of its AirPods production to Vietnam were taken on its own accord, according to decision-makers. But none of them refers to the iPhone, which is mainly made in China. Some older models are assembled in India and focus on the domestic market there.
Cook's ability to promote Washington for duty relief will be tested in the coming years weeks. So far, he has been able to obtain a temporary compensation for iPhones, iPads and Apple laptops, for which no US fees are charged until 15 December. But for the future, unless an unlikely, rapid solution to the war of commerce is reached, Apple looks like it needs to make comprehensive plans for building iPhones outside of China, however expensive it may be.
(An earlier version of the story has been corrected to reflect the proper name of the Wedbush analyst.)
(Chinese Market Context Updates from paragraph 8)
– With support from Edwin Chan.
Contacting the reporter on this story: Debby Wu in Taipei at [email protected]
Contacting Editors History: Edwin Chan at [email protected], Vlad Savov, Peter Elstrom
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