Apple’s dependence on China: ‘Bloomberg’ echoes concerns; Tim Cook’s strategy comes back to haunt him
Bloomberg has echoed concerns about Apple’s dependence on China for what the company terms FATP: final assembly, test, and pack.
Mark Gurman points out that China was chosen by Tim Cook, the chief operating officer of the company back when he was still the chief operations officer.
Background
We’ve been warning about Apple’s over-dependence on China for many years now. Back in 2017, we wrote:
Apple is in a very different position today than was Google in 2010. Although Google was ambitious in the country it wasn’t dependent on the markets. Apple very much is. China is not only the biggest smartphone market, but it’s also the iPhone maker’s main manufacturing base. Without China, it literally couldn’t make its products.
In 2019:
Apple is working on this, with new manufacturing plants in India, Vietnam, Indonesia and elsewhere. But my view is that it probably needs to accelerate these efforts such that it could, if necessary, abandon China as a manufacturing base altogether.
And again just last month:
One nightmare scenario could easily lead to another. China might feel empowered by the events in Ukraine and decide it’s time to take control of Taiwan.
Putin just demonstrated that the West cannot take any kind of military action to defend the Ukraine; the threat of all-out nuclear war is just too terrifying. All our military forces can do is sit back and watch, and hope the economic sanctions will ultimately prove effective. The same would be true of Taiwan […]
Much of the world would again impose financial sanctions on China, though the global economic impact would be high. Apple could not afford to stand firm. Apple would be not only sacrificing large amounts of sales in China, but would be completely unable to satisfy global product demand if Chinese manufacturing was stopped.
We’ve always acknowledged that Apple couldn’t act overnight, and the company has made progress over the years in diversifying its manufacturing and assembly processes, but the pace of this has been glacial. It’s now been five years since even outside commentators could see the writing on the wall, and the Cupertino company still seems reluctant to take decisive action.
‘Bloomberg’ on Apple’s dependence on China
Bloomberg‘s Mark Gurman said that the company’s warning that the current quarter could take a $4B to $8B hit is further evidence of the scale of the problem, even in the immediate term.
Apple Inc. likes to say that its supply chain is global and that it isn’t overly dependent on China. Apple’s dependence on China for its manufacturing has led to headaches for investors, consumers, and the company itself during the pandemic.
That was especially evident on the company’s second-quarter conference call last week, when Apple warned that supply shortages–spurred in large part by Covid-19 lockdowns in China–would reduce sales by as much as $8 billion. That’s like losing an entire quarter’s worth of iPad sales.
Gurman reveals that Cook is the architect for this China-based assembly system.
The assembly process is what really slows down production. It’s better known as FATP within Apple. FATP stands for Final Assembly, Test and Pack. The vast majority of Apple devices go through that process in China. This is why you’ll see the “Assembled In China ” label on your MacBook Pro, iPad, or iPhone.
It’s a model that Cook pioneered himself, centralizing assembly in the country as components get shipped in from around the world.
While COVID-19-related disruption may be a temporary problem, Gurman runs through a whole series of China-related issues the company has experienced over the years, and suggests that the company should spend some of its vast cash surplus on investing in a much faster manufacturing diversification program.
Perhaps these billions could be spent creating a global, more efficient final assembly system and a greater push towards automated manufacturing.