Apple (AAPL) CEO Tim Cook last week traveled to Vietnam, Indonesia and Singapore as part of a multi-day trip aimed at reducing Apple's dependence on China as its core manufacturing hub. He visited Southeast Asia.
And while Apple has no intention of abandoning China (Cook spent several days in the country just last month), the company is avoiding potential future manufacturing hurdles in the region.
At the same time, with China becoming a more mature smartphone market, the company is gradually setting its sights on India as its next major growth opportunity.
“Apple is at the beginning of the decade”[-long] It's about moving away from dependence on China and diversifying into other countries in Southeast Asia, both on the manufacturing and demand side,” Gene Munster, managing partner at Deepwater Asset Management, told Yahoo Finance. Ta.
But it could take some time for Apple to reduce its dependence on China to make devices and grow its market share.
Manufacturing growth beyond China
China makes up a disproportionate number of Apple's supply chain partners, including Foxconn and Pegatron. The concentration of manufacturing capacity in one region proved particularly detrimental during the pandemic, when China forced factory closures and limited Apple's ability to manufacture and ship devices.
Once production capacity came back online, Apple was once again able to meet consumer demand. But the fact that the factory closures had such an impact on the company was a worrying sign of supply chain fragility.
“Apple essentially said in the last conference call that they had fulfilled about $5 billion in back revenue,” Wamusi Mohan, an analyst at BofA Securities, told Yahoo Finance. “This equates to $5 billion for each facility closed in China.”
Given the bleak state of U.S.-China relations and the retaliatory measures both countries have taken against their respective tech companies, this lack of supply chain resilience, if left unchecked, could hurt Apple again. The US is trying to block Huawei from gaining access to high-end processors and forcing ByteDance to sell TikTok, while China is demanding that state officials stop using devices made by Western companies. It is reported that there are.
“I think Cupertino will attack aggressively.'' [Southeast Asian] Wedbush analyst Dan Ives told Yahoo Finance. “While China remains very dangerous for Apple, Cook is risk-averse as Vietnam and Indonesia are soft landing spots for iPhone production.”
Apple's problems in China go beyond manufacturing complexity. The company is also grappling with a slowdown in iPhone sales in the region amid signs of economic growth and regional rivals stealing market share.
Greater China is Apple's third largest market in terms of sales, after the Americas and Europe. However, iPhone sales in the region are slowing. In the first quarter, Apple reported a 13% year-over-year decline in sales in Greater China, which comes after a 2% decline in 2023 as a whole. Apple previously reported 9% growth in the region in 2022.
China is also a relatively mature smartphone market, making significant growth a challenge, and this is where India comes into the picture.
India as the next China
India, the world's most populous country, has a growing middle class, which could be a boon for Apple.
“It took probably five years for China to really become important,” Munster explained. “India will probably take 10 years. The reason is that India has the population on its side, but India's GDP per capita is about a quarter of China's. So, generally speaking, India People don’t have the same wealth as in China.”
Apple opened its first official store in India last year, and Cook himself kicked off the celebrations at the Mumbai store. Apple manufactures some of its latest iPhones domestically, making it even more important for the company.
Emerging markets like India will be key to Apple's growth in the coming years as larger markets continue to mature and growth slows. The company also sends out telegrams to the same extent. Management has repeatedly pointed to emerging markets as a growth area during earnings calls, and Tim Cook singled out growth markets such as India in his opening remarks at Apple's first-quarter earnings call.
Still, it will be years before Apple tries to expand its manufacturing and market share outside of China. Therefore, for the time being, the company will continue to rely on China and will have to find ways to make the most of it.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter @Daniel Howley.
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