ColdFusion - Apple Makes iPhone 14 in India Amid China Woes

Starting point is 00:00:02 Hi, welcome to another episode of Coldfusion. The latest iPhone the iPhone 14 has just been announced. While the focus is on what new features may or may not have been added, there's a lot to be said about the story of how an iPhone is made. From European chip manufacturing machines to Taiwanese critical components, it really is a global effort to put one of these devices in your hand. Since the beginning, China has been the go-to place to manufacture the iPhone. But lately, due to potential science,

Starting point is 00:00:32 of instability in China, Apple is increasingly looking towards India to pick up some of that manufacturing capability. Let's take a look at what's going on. So to begin, why was China the place that was selected to manufacture the iPhone? Well, let me tell you a little story. As detailed in my book, in 2007, Steve Jobs decided to have a glass screen instead of plastic for the first iPhone. He made this decision just weeks before its launch. But what I didn't write was how this was achieved. American companies said that this last-minute switch was impossible. However, a Chinese factory said that they could do it. They constructed a dormitory beforehand so their workers could work 12-hour shifts.

Starting point is 00:01:23 When the contract was signed with Apple, 8,000 workers were woken up from sleep, given a biscuit and tea, and then got to work fitting the glass screen to the iPhone to in the end produce 10,000 iPhones per day. If this work was done in the United States, one, it would be much more expensive, and two, it would take a few months to gather all the workers, while in China it only took a few days. Leaving aside the obvious human rights issues, stories like this highlight why China is dubbed the world's factory and why the iPhone is mostly made there.

Starting point is 00:01:55 But as mentioned, recently, things have begun to swing towards India. Apple first started manufacturing iPhones in India in 2017 with the iPhone SE. Since then, Apple has been working with suppliers to ramp up manufacturing in India, and now it's picking up the pace. In 2020, India was making 1.5% of global iPhone supply. Currently, the country accounts for about 5% of supply. With the iPhone 14 in 2022, Apple wants to race this to 7%. That's around 12 million iPhones. Earlier this year, Apple even started making the iPhone 13 in India. Last month, Apple analyst Ming Chi Kuo stated that iPhone 14 production would begin in India six weeks after beginning in China. Usually this lag would be six to nine months. It's believed that iPhone

Starting point is 00:02:48 15 production next year will begin simultaneously in both countries. And the Indian government has offered financial incentives for tech production. They call this scheme the Make in India program. Foxcon, the primary manufacturer of iPhones, studied the process of shipping components from China and assembling the iPhone 14 at a plant in the Indian city of Chennai in the south. For now, this is likely the supply chain will work. While this may be good news for India, there are still three main hurdles to overcome. Number one, there is a huge supply chain network in China, which doesn't exist in India. It would take a lot of investment to get a parallel Indian system to a comparable state. Assembling iPhones often entails coordination between hundreds of suppliers, and this isn't

Starting point is 00:03:37 to mention Apple's infamously tight deadlines and strict quality control. Number two, for Apple, there's a great deal of risk when it comes to security and secrecy when moving to a new country. Apple goes to extreme lengths to keep new product details confidential and to stop leaks. Imposing the same rigorous controls in a second country would prove to be very difficult. Local Foxcon executives in India have thought about entirely cornering off a section of one of Foxcon's assembly lines. According to Bloomberg, they placed a great deal of scrutiny on how security around the device could be compromised. The conclusion so far, it's going to be a real challenge to replicate the drastic security controls that the Chinese facilities have. In addition to this, also according to Bloomberg, Apple has major concerns about Indian customer officials.

Starting point is 00:04:27 They usually open up packages and check their contents. This is to make sure materials match their declarations, and it goes without saying that this is a massive potential vulnerability for product security. And number three, India's workforce and factories have caused a bit of a headache. for Apple over the past five years. There have been disputes and even revolts over poor quality food and pay. It seems that this will probably be the easiest issue to fix, improve the facilities, and re-examine wages. So why is Apple doing all of this exactly?

Starting point is 00:05:01 Well the key word is uncertainty. Because of the economic and geopolitical climate, Apple sees a need to diversify its supply chain and build redundancy. They're seeking alternatives as the CCP clashes with the US government. A visit to Taiwan by the speaker for the US House of Representatives, Nancy Pelosi, came at possibly the worst time. It partly destabilized the Asia-Pacific region at a time when tensions were already high. Harsh lockdowns across China, especially those in the manufacturing hubs, have really disrupted economic activity. These lockdowns, as well as US sanctions, have put a dent in China's

Starting point is 00:05:37 manufacturing prowess. Couple this with rising labour costs in China and a shaky property market, And it's no wonder Apple is starting to look elsewhere for manufacturing. All goes into Apple's strategy of further diversifying its production capabilities outside of greater China. But yeah, this is a very big move. And, you know, does it mean that Apple is going to move entirely out of China? No, but it does see Apple hedging its bets that, you know, there's potentially bigger problems coming as far as manufacturing products there down the line. And obviously this also comes after all those locked-downs.

Starting point is 00:06:13 and shutdowns that we've seen in China hampering manufacturing. So this is Apple making a bet on the fact that they may have to further diversify just to kind of get away from these kind of troubles in the future. So what do you guys think? Do you think Apple's move will encourage more investment by other companies to India? Feel free to discuss in the comments section below. Anyway, that's about it from me. My name is DeGogo and you've been watching Cold Fusion.

Starting point is 00:06:40 And I'll catch you again soon for the next episode. Cheers guys. Have a good one.

ColdFusion - Apple Makes iPhone 14 in India Amid China Woes

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