Apple Inc. AAPL is doubling down on its “China+1” strategy, and the tech giant’s supply chain shake-up is more than just a whisper in the wind.
Apple’s India Ramp-Up Is Crucial
JPMorgan analyst Samik Chatterjee reveals that Apple's production in India is gearing up to hit 20-25% of total iPhone units by 2027. While iPhone assembly margins in India are currently lower, they are "expected to improve over time as the scale of operations increase."
The ramp-up in India is crucial, as it reflects Apple's effort to diversify production away from China amid rising geopolitical tensions.
50% Of AirPods, Apple Watch Production To Move Outside China
Chatterjee’s analysis highlights that "AirPods and Apple Watch production outside China is increasing rapidly," with projections showing non-Mainland China production exceeding 50% by 2024 for AirPods, and by 2027 for the Apple Watch.
This shift is part of Apple's broader strategy to bolster production in Southeast Asia, notably in Vietnam, where lower-volume products like AirPods and the Apple Watch are finding a new home.
Yet, the supply chain transition is not without its hurdles. Component supply chains remain "largely in Mainland China," and the overall relocation of components is "happening quite slowly."
Key Beneficiaries Of The Supply Chain Shift
The shift is more pronounced in assembly, where Hon Hai Precision Industry Co Ltd and Luxshare Precision Industry Co Ltd are poised to benefit significantly from Apple's diversification strategy. “We have seen strong growth for Hon Hai's component revenue YTD, driven by increasing component supply in Apple products,” noted Chatterjee. Luxshare, in particular, is gaining ground and consolidating market share amid the ongoing shift in production.
Pegatron Corp, on the other hand, “should see muted revenue momentum, given the market share shift in the iPhone assembly business.”
Segmentation In iPhone EMS Landscape
The move to Southeast Asia and India is expected to create segmentation in the iPhone EMS landscape, with India's contribution to iPhone assembly ramping up but facing initial challenges in margins due to lower scale.
The tech giant is also managing "a mild ramp-up in southeastern Asia" for MacBook assembly and a slower pace for iPad diversification, the analyst notes.
As Apple continues to reshape its supply chain, the benefits of this strategy are clear, though the transition involves navigating some bumpy roads. Investors should keep an eye on the evolving production dynamics and the impact on margins as Apple's “China+1” strategy unfolds.
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