Last night Apple unveiled MacBooks, powered by its new M2 Pro and M2 Max chips, in a surprise announcement weeks ahead of its traditional launch event, with some observers claiming the company is looking for revenue to bolster falling iPhone sales, which have been affected by Covid and more so by their big bet on China, which is now causing problems for them.
Late yesterday, key Apple manufacturing partner Foxconn Technology announced a major shakeup with the appointment of a new boss to head the operation that is responsible for the manufacture of tens of millions of Apple products in China.
Today, more than 95 per cent of Apples products, including iPhones, AirPods, Macs and iPads, are made in China, where Apple also earns about a fifth of its revenue – $74bn last year.
That contrasts with rivals such as Samsung, which have sharply cut back manufacturing in China.
Current Apple CEO Tim Cook and his company are now under intense pressure from investors and US politicians to “decouple” from China and accelerate a diversification strategy that has resulted in Apple investing in new assembly plants in Vietnam and India, and this could cost Apple as the components manufactured in China have to be shipped to these new manufacturing countries.
During the past few months, as Apple’s problems in China have been exposed due to shutdowns and COVID-related issues, Michael Chiang, the newly appointed head of Foxconn’s operations, played a key role in communicating with the local State government and making sure Apple’s demands would be satisfied, insiders claim. But despite this, retailers in Australia were left without Apple stock.
While Apple is looking to manufacture products outside of China, their single biggest problem is that no new products have been announced by Apple since the death of Company founder Steve Jobs, who gave the world the iPhone, Mac PC, and the original iPod.
This, coupled with the Company being pressured to exit China, is creating a problem the best brains in Apple are struggling to comprehend and manage.
What Apple has constantly delivered during the past 16 years is improved products, not brand-new products, similar to the Steve Jobs-created products that took the world by storm.
Shortly, Apple will announce their latest financials and they are tipped to be bad, with the real possibility they could get worse as inflation takes its toll on the Apple bottom line, especially in the US, their biggest market and where retailers refer to tap-and-go as Apple Pay irrelevant of what phone you are using.
Apple’s bet on China and their latest moves to disentangle themselves from the Chinese smartphone manufacturing system is creating a major problem for the US Company that is being pressured by the US Government to get out of China. But that is not proving easy for Apple management.
It was back in 2008 when Nokia realised that Steve Jobs had not only delivered a smartphone superior to their Nokia offering but that he had also developed a manufacturing ecosystem in China that Nokia was struggling to comprehend.
Apple CEO Tim Cook
Back in 2007, Nokia reigned supreme in the smartphone market. They had close to a billion customers using a Nokia mobile phones, then along came Steve Jobs with his iPhone that had better software than Nokia devices, and more importantly a touchscreen and technology Nokia could not match when it came to component sourcing.
Jobs bet on China and Foxconn as their manufacturing partner.
Together they built up a supply and manufacturing operation of such complexity, depth and cost that the Company’s fortunes were suddenly tied to China so much so that Apple is struggling to unwind their dependency on China today.
Bloomberg claims China accounts for 70 per cent of all smartphone manufacturing today, and that the country sports a level of technical sophistication that multiple experts say they struggle to even comprehend.
“It’s a really, really highly-evolved ecosystem in China,” says Jay Goldberg, founder of tech consultancy D/D Advisors.
China’s dominance can partly be quantified. In 2021, the number of organisations in the country that had been audited to confirm best practices in “quality management systems” – ISO certification 9001 – was 426,716, or roughly 42 per cent of the global total. For India the figure was 36,505, for the US it was 25,561.
This order of magnitude superiority has reshaped the global economy, granting China influence rivalled only by the US. Apple got in on the ground floor and channeled that power to dominate the tech sector. But now, a reckoning looms.
“For Apple to give that system up is tricky,” says Goldberg. “You’re not just saying ‘we’ll build our plants somewhere else,’ it’s [that] the subcontractors and suppliers to that plant are all based in South China.”
The UK Financial Times recently reported that during the past 16 years Apple has been sending its top product designers and manufacturing design engineers to China, embedding them into suppliers’ facilities for months at a time.
These Apple employees have played integral roles co-designing new production processes, overseeing the minutiae of manufacturing until things were up and running, and keeping close tabs on suppliers to ensure compliance.
Apple has also spent billions of dollars on custom machinery to build its devices, developing niche expertise that its rivals did not even know about, let alone compete with.
They even cut deals with archrival Samsung to supply components such as memory and display screens that were assembled in their Chinese assembly plants.
Apple’s current CEO Tim Cook succeeded Steve Jobs as CEO in 2011.
It was he who shifted the rest of Apple’s production from the US to China, where he established unparalleled efficiencies that led to Apple building out a dominance and, more importantly, a profit margin from iPhone that delivered billions of dollars to Apple’s bottom line.
According to the Financial Times, Cook is now facing a real mess.
The current manufacturing concentration is glaring for a risk-averse company widely lauded for leading the world in supply chain brilliance.
Cook and his Company are now under intense pressure from investors and US politicians to “decouple” from China and accelerate a diversification strategy that already has some products assembled in Vietnam and India, claims the FT.
Interviews with 25 supply chain experts, including nine former Apple executives and engineers, suggest the iPhone maker has few viable paths out – and none in the short term.
And it’s clear to those who know the company well where responsibility lies. “Supply chain all goes back to one guy: Tim Cook,” says a former Apple veteran. “This mess is his fault.
“This isn’t just ‘the buck stops at the top,’ it’s that ‘the buck stops with the guy who headed the supply chain.’ And Tim is the Master of Supply Chain.”
