(Bloomberg) –
A major supplier of Apple Inc. and a dozen other tech giants plan to split their supply chain between the Chinese market and the US, declaring that China’s time as a factory to the world is ready due to the trade war.
Hon Hai Precision Industry Co. Chairman Young Liu said it was gradually adding more capacity outside of China, the main base of production for gadgets from iPhones to Dell desktops and Nintendo Switches. The share outside the country now stands at 30%, up from 25% last June.
That ratio will increase as the company – also known as Foxconn – moves more production to Southeast Asia and other regions to prevent rising tariffs on Chinese-made goods to U.S. markets, Liu told reporters after his company reported financial results.
“Whether it is India, Southeast Asia or the Americas, there will be any ecosystem of a production,” Liu said, adding that although China will still play an important role in Foxconn’s production empire, the days of land as the factory of the world are done. ”
Intensifying trade tensions between Washington and Beijing have driven device manufacturers to diversify their production bases away from China, and Liu said last year that Apple’s most award-winning product, the iPhone, could be made outside China if needed. The two peoples remain in trade talks, but Liu’s comments confirm a growing expectation that the China-centric electronics business chain will fragment over the longer term.
Read more: Trump Tumult Has Gadget Giants Divide Along US-China Lines
The Taiwanese company reported better-than-expected NT revenue of NT $ 22.9 billion ($ 778 million) for the quarter ended June, boosted by increased demand for iPads and MacBooks. Revenue was NT $ 1.13 trillion, but Hon Hai warned that it expects its sales in the third quarter by double digits relative to 2019 if Apple slows its iPhone launch this year.
Hon Hai kicked back in a record profit attack in the first four years when production returned to its factories and shelters stimulated the demand for home computer equipment. The pandemic has likely boosted sales of iPad and Mac, even as Apple store closures weigh on iPhone sales, Apple CEO Tim Cook said on July 31 after reporting quarterly revenue that burned estimates. Apple accounts for half of Hon Hai’s sales.
Read more: Apple smashes revenue, estimates iPhone on demand for pandemic
Even if Apple had it better, Hon Hai’s other customers did less well. Hong Kong-listed subsidiary FIH Mobile Ltd. said in its Aug. 7 licensing statement that although the new phones from Huawei Technologies Co. have been popular in China, they lack expectations elsewhere after U.S. sanctions. Another key customer Xiaomi Corp. left a gap in the Indian market amid growing tensions between China and the South Asian country. FIH lost $ 100 million in the first half.
Foxconn has shaken up its traditional China-focused operations. Hon Hai is among Apple partners planning to expand operations in India, potentially helping the iPhone maker grow its presence in the country by 1.3 billion and shifting some of the supply chain’s supply chain American company outside China as ties between Washington and Beijing.
Chinese rivals also pose a growing challenge. Local electronics-titanium Luxshare Precision Industry Co. intends to become the first Chinese self-made iPhone assembler after concluding a deal in July to buy an Apple handset manufacturing plant from Wistron Corp. While Hon Hai will keep assembly orders for premium iPhones, Luxshare will eat up the company for mid-to-entry-level Apple handsets, Fubon Securities analyst Arthur Liao wrote in a July 23 note.
Foxconn will work on its component business to maintain tech leadership and it will also benefit from its long-term relationship with Apple, Liu said in response to several questions from analysts about Foxconn’s competitive strategy against the emerging Chinese supplier.
Orders could be further affected after President Donald Trump issued an executive order barring U.S. residents from doing business with Tencent Holdings Ltd.’s WeChat. Annual shipments of the iPhone could drop 25% -30% if Apple is forced to remove the app from its app stores worldwide, TF International Securities analyst Kuo Ming-chi warned in a August 9 note.
(Updates with chairman’s remarks from first paragraph)
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