Apple Strengthens Supply Chain in China While Growing Presence in Southeast Asia and India

Apple Inc AAPL is deepening its involvement with China while expanding its production in Southeast Asia and India, illustrating the iPhone maker’s delicate balancing act between political pressures and business needs.

In 2023, Apple increased its number of China-based suppliers and manufacturing sites, reducing its reliance on suppliers from Taiwan, the U.S., Japan, and South Korea, according to a Nikkei Asia review of Apple’s latest official supplier list.

Apple publishes an official list of its suppliers nearly every year. The most recent list includes 187 companies, accounting for 98% of the company’s procurement for fiscal 2023.

Since 2020, Chinese suppliers have become the largest group within Apple’s supplier network, growing to 52 in the last year from 48 in 2022. The number of manufacturing or development facilities in China, including those owned by domestic and foreign companies, increased by 10 to 286.

As Apple accelerates its supply chain shift to Southeast Asia amid the ongoing U.S.-China tech conflict, its ties with China continue to deepen.

The number of Apple suppliers in Vietnam surged by 40% to 35 last year, while the number in Thailand increased by about a third to 24. The number of suppliers in India remained stable at 14.

However, this growing presence in India and Southeast Asia does not necessarily mean a reduced dependence on China.

Prior reports conjectured that Apple reduced its dependence on China due to growing geopolitical tensions between the U.S. and China after which Washington imposed a semiconductor technology embargo on China which included import of sophisticated AI chips from Nvidia Corp NVDA and other chip designers.

Nikkei Asia’s analysis indicates that approximately 37% of the 35 suppliers in Vietnam are from China and Hong Kong, including AirPods assemblers Luxshare and Goertek and iPad assembler BYD. 

All three have increased their production capacity in the country to serve Apple.

Taiwanese suppliers remain the second-largest group in the Apple supply chain, followed by U.S., Japanese, and South Korean suppliers.

A significant portion of its supply chain is in China, and revenue from Greater China — the world’s largest consumer electronics market — still accounted for 17% of its total revenue in the December quarter.

According to IDC data, Apple’s shipments in the first quarter of this year dropped nearly 10% globally, a steeper year-over-year decline than peers like Samsung and Xiaomi experienced.

Prior reports indicated that Apple is offering the iPhone 15 series at steep discounts in China through resellers, implying softening demand.

Morgan Stanley analyst Erik Woodring anticipates a slight revenue increase for the March quarter. 

Still, he expects a significant downward revision for the June quarter guidance compared to consensus, which may initially disappoint the market. 

Despite this, he sees potential for a relief rally at Apple, especially with the upcoming Worldwide Developer Conference (WWDC) expected to showcase new AI software features. 

Woodring notes the possibility of a nearly 30% upside to his new price target and a pivotal AI-driven iPhone cycle in fiscal 2025, focusing on total revenue, China iPhone shipments, and Services revenue growth in his analysis.

Apple stock gained 4% in the last 12 months. Investors can gain exposure to the stock via Vanguard Information Tech ETF VGT and SPDR Select Sector Fund – Technology XLK.

Price Action: AAPL shares traded higher by 0.39% at $170.55 premarket at the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image Source – Apple