More people are now asking if Apple CEO Tim Cook has made Apple too dependent by betting everything on China. Cook, since joining Apple more than 20 years ago, is famous for having “transformed Apple’s supply chain, relying on China to manufacture devices with the help of low-cost, skilled labor, and to ship those products around the world,” as Mark Gurman wrote just last week for Bloomberg News. For this, Cook is called an “operations genius” by some.
Long before Donald Trump moved into the White House or the coronavirus paralyzed the city of Wuhan, Apple Inc.’s operations team began raising concerns about the technology giant’s dependency on China.
Some operations executives suggested as early as 2015 that the company relocate assembly of at least one product to Vietnam. That would allow Apple to begin the multiyear process of training workers and creating a new cluster of component providers outside the world’s most populous nation, people familiar with the discussions said.
Senior managers rebuffed the idea. For Apple, weaning itself off a stubborn dependency on China, its second-largest consumer market and the place where most of its products are assembled, has been too challenging to undertake.
Apple’s addiction to manufacturing in China has long frustrated staff — and more recently unnerved investors. The coronavirus represents Apple’s third major setback there in as many years, including the fallout from tensions with the U.S. that included tariffs and slower-than-expected iPhone sales in the country.
“No executive will admit in a public forum: We should have thought about” the vulnerability to China, said Burak Kazaz, a Syracuse University supply chain professor and former researcher at International Business Machines Corp. “But from this point on, there are no excuses.”
MacDailyNews Take: Tim Cook’s response to this issue in a recent interview with Fox Business:
The question for us is: Was the resilience there or not? And do we need to make some changes? My perspective sitting here today is that if there are changes, you’re talking about adjusting some knobs, not some sort of wholesale fundamental change. — Apple CEO Tim Cook, Fox Business, February 28, 2020
Denial ain’t just a river in Egypt.
The full WSJ article offers an interesting juxtaposition:
Finding a comparable amount of unskilled and skilled labor is impossible, said Dan Panzica, a former Foxconn executive. The population in China has allowed suppliers to build mega-factories with a capacity for more than 250,000 people. The number of migrant workers in China, who do much of Apple’s production, exceed Vietnam’s total population of 100 million. India is the closest comparison, but its roads, ports and infrastructure lag far behind those in China.
Yet, a few paragraphs later, the WSJ goes on to explain:
After winning the election, Mr. Trump said in Time magazine that he told Mr. Cook that he wanted Apple “to build a great plant, your biggest and your best, even if it’s only a foot bigger than some place in China.” The administration later started levying tariffs on imports of goods made in China.
Mr. Cook managed to avert tariffs on Apple’s bestselling product, the iPhone, telling President Trump it would put the company at a competitive disadvantage to its biggest rival, South Korea’s Samsung Electronics Co. But Apple wasn’t able to avoid tariffs on headphones and other devices.
Samsung isn’t subject to the tariffs because it moved most of its smartphone manufacturing out of China in recent years. It is now assembling its signature phones in Vietnam, India and South Korea.
If Samsung can assemble millions of smartphones outside of China, why can’t Apple?
Has Apple CEO Tim Cook made Apple too dependent on China? Obviously, to just about anyone by now, the answer is yes.
Regardless of how the stock price is doing, in order to responsibly mitigate risk, Apple needs to break its China addiction.
Imagine if Apple had over the past several years invested some of the $400 billion they’ve spent on buybacks on diversifying production, you know, in case of trade issues, natural disasters, health emergencies, foreign government actions, etcetera? The good news is that with Apple so dependent on China, every time China catches a cold, we get a nice irrational discount sale on Apple shares. — MacDailyNews, February 27, 2020