Apple moves to 'de-risk' China production, keep iPhone SE price low

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Apple may be cutting its iPhone SE margins to drive sales and is looking to partially move iPhone production out of China, investment bank Piper Sandler said on Sunday.

Apple may be cutting margins on the iPhone SE to drive users to services.
Apple may be cutting margins on the iPhone SE to drive users to services.


In a semiconductor research note seen by AppleInsider, analyst Harsh Kumar indicates that there were several Apple data points "of interest" amid a period of limited earnings announcements and escalating trade tensions between the U.S. and China. Specifically, Apple appears to be giving up some of its margins on the new iPhone SE to "drive a greater install base."

Piper Sandler cites a Nikkei review of iPhone SE component costs, which reveals that the entry-level device have a 54% component cost margin -- the highest for recent models. Kumar says that it makes sense for Apple to eat some of those costs due to the profitability of getting more users on its services, which have a gross margin of 65.3%, much higher than its product gross margin of 30.4%.

At the same time, the senior analyst forecasts that Apple is attempting to "de-risk its exposure to China as a trade partner" by at least partially moving production elsewhere.

Citing a report by The Economic times, Kumar notes that Apple executives have met with Indian officials to discuss a drive of nearly $40 billion in production to India over the next five years. Kumar adds that the production will be driven by current manufacturing and assembly partners like Wistron and Foxconn.

The Cupertino tech giant may also be suggesting that supply partner Luxshare invest in Catcher in a broader attempt to diversify its supply chain and reduce its reliance on Foxconn. The analyst gives TSMC's rumored Arizona chip manufacturing plant as an example of companies continually looking to de-risk their China production.

All of this comes during a ramp up of trade tensions between the U.S. and China. After the U.S. looked to further enforce its technology ban on Huawei, China on Friday was already readying countermeasures for retaliation.

Although the smartphone industry is still reeling from the effects of coronavirus, handset shipments in China actually grew 14% year-over-year in April. That suggests a good recovery from lockdown measures earlier in 2020 -- and could provide a precedent for recovery in the U.S. and Europe.
razorpit

Comments

  • Reply 1 of 11
    razorpitrazorpit Posts: 1,796member
    Good. Having all your eggs in a communist dictatorship's basket is a bad thing.
    Beatsaderuttercat52PatchyThePirateV.2docno42
  • Reply 2 of 11
    lkrupplkrupp Posts: 10,315member
    razorpit said:
    Good. Having all your eggs in a communist dictatorship's basket is a bad thing.
    Prepare to be chastised by our resident China cheerleaders, and we all know who they are.
    razorpittmaycat52PatchyThePirateV.2
  • Reply 3 of 11
    rotateleftbyterotateleftbyte Posts: 1,600member
    If China goes ahead with its threat to make Apple a virtual enemy of the Chinese State because of the escalating Trade War with the USA, you don't have to be a rocket scientist to see where the fault lies.

    Apple really does need to have a second source for everything and that second source must not be in China or Taiwan or Korea.

    Apparently the India Government is very welcoming if... you can work your way through the beaurcratic maze that is India.
    razorpitcat52
  • Reply 4 of 11
    dewmedewme Posts: 4,632member
    The relevant point here is that Apple is always financially responsible for assessing all potential and existential risks to their business, both internal risks and external risks. Where risks are identified they must implement plans to mitigate these risks and let all stakeholders know what they are doing to mitigate and reduce risk exposure and effects, how it is being addressed in their business operations, and on what timeframes and schedules. These are exactly the kinds of things you'd expect to be reflected in Apple's, or any other publicly traded company's annual report and business operations documentation. I'd bet Apple has a risk mitigation and response plan in place to deal with the risk of earthquakes at their California (especially) and other business locations. 

    This is business as usual in the highly volatile business environment in which Apple operates, nothing more and nothing less.
  • Reply 5 of 11
    BeatsBeats Posts: 3,073member
    lkrupp said:
    razorpit said:
    Good. Having all your eggs in a communist dictatorship's basket is a bad thing.
    Prepare to be chastised by our resident China cheerleaders, and we all know who they are.

    The same morons who wanna see their own country burn just to watch Apple go down with it.
    razorpitcat52
  • Reply 6 of 11
    BeatsBeats Posts: 3,073member
    What iKnockoff users don't understand is that a trade war with China also affects China. Imagine the entire manufacturing industry moving out? That will also hurt their knockoff industry which is what they're known for. If we wouldn't have passed our technology to their plants, they wouldn't have created their knockoff industry.

    Pretty messed up when you think of it. It's like hiring a neighbor to bake your cakes then she steals your recipe and sells hers next to yours but for cheaper.  
    razorpitcat52docno42
  • Reply 7 of 11
    Beats said:
    What iKnockoff users don't understand is that a trade war with China also affects China. Imagine the entire manufacturing industry moving out? That will also hurt their knockoff industry which is what they're known for. If we wouldn't have passed our technology to their plants, they wouldn't have created their knockoff industry.

    Pretty messed up when you think of it. It's like hiring a neighbor to bake your cakes then she steals your recipe and sells hers next to yours but for cheaper.  
    I personally don’t care of things are assembled in China or elsewhere. I also don’t get why people are so consumed with assembly in China. That said your post is a bit strange. Currently the trade war is hurting both the U.S. and China. U.S. customers are paying the tariffs not China and there doesn’t seem to be a ton of movement out of the country in terms of manufacturing. You are right that If every manufacturer moves out of China that will certainly hurt China the most but isn’t a terribly plausible hypothetical situation. Your lest bit about I.P. is correct(ish). I.P. Enforcement in China is kinda a joke and any company doing business there knows that and willingly takes that risk. In the case of Apple what I.P. Have they lost by virtue of assembly in China? The  components are made all over the world as is the software. It all gets sent to China to be put together and boxes but that isn’t where the secret sauce is. Any insight to I.P. Gained from assembly is going to be gained by just getting the product. Lastly you Called it “our technology”, Apple’s I.P. Is Apple’s not American and not yours. It seems China is the o lot entity laying claim to other’s work. 
  • Reply 8 of 11
    apple ][apple ][ Posts: 9,233member
     Lastly you Called it “our technology”, Apple’s I.P. Is Apple’s not American and not yours. It seems China is the o lot entity laying claim to other’s work. 
    I would disagree. Apple is American and their IP is also American. Apple is not free to do as it wishes with their IP. They are bound by American laws and they are also protected by America. 

    I remember some years ago when one of Apple's computers was classified as a supercomputer and they were not allowed to sell it to certain countries.
    PatchyThePirateV.2
  • Reply 9 of 11
    apple ][ said:
     Lastly you Called it “our technology”, Apple’s I.P. Is Apple’s not American and not yours. It seems China is the o lot entity laying claim to other’s work. 
    I would disagree. Apple is American and their IP is also American. Apple is not free to do as it wishes with their IP. They are bound by American laws and they are also protected by America. 

    I remember some years ago when one of Apple's computers was classified as a supercomputer and they were not allowed to sell it to certain countries.
    Well, that is incorrect. Apple does development globally and registers its IP globally. America has no specific claim to it and Apple defends its IP globally so America doesn’t protect it. 

    What you are talking about is the G4 chip which was Motorola’s IP and that happened two decades ago. It also has not baring on my point. 

    It’s funny that your comments ultimately argue that The U.S. is a communist state with no delineation between state and private ownership. That is objectively false. 
  • Reply 10 of 11
    docno42docno42 Posts: 3,733member
    I also don’t get why people are so consumed with assembly in China. 
    Well lets see - it’s a cabal of totalitarian assholes who don’t care about the lives of their citizens, let alone anyone else and will do whatever it takes to stay in power - including sacrificing millions of their own in the pursuit of said power.  The most recent example of literally millions dying for Communist evil happened with COVID-19.

    Yeah, that sounds like a stable group of people to provide technology, funding, and legitimacy like inviting into the WTO.  They are the very definition of existential threat yet at best we see people like you who are apathetic to at worse sycophants like our media, a good chunk of our business, sports, and half our political ruling class who are more than happy to pretend that doesn’t exist as long as they can make a buck.  Even more ironic, the media and half the politicians in particular will also go on and on about the evils of ‘big business’ while funding people who would be more than happy to slit our throats or nuke us into oblivion if they thought they could reasonably get away with it.  China - the country that tested the blowing up of a satellite but didn’t bother to try to minimize the impact of the space junk it would create.

    But yeah, we shouldn’t be worried where our stuff is manufactured.   Just keep telling yourself it doesn’t matter.

    Western society deserves to die at this point.  Just like the Romans at the fall we are fat, dumb, lazy and forgot what it took to get where we are today.  
  • Reply 11 of 11
    docno42 said:
    I also don’t get why people are so consumed with assembly in China. 
    Well lets see - it’s a cabal of totalitarian assholes who don’t care about the lives of their citizens, let alone anyone else and will do whatever it takes to stay in power - including sacrificing millions of their own in the pursuit of said power.  The most recent example of literally millions dying for Communist evil happened with COVID-19.

    Yeah, that sounds like a stable group of people to provide technology, funding, and legitimacy like inviting into the WTO.  They are the very definition of existential threat yet at best we see people like you who are apathetic to at worse sycophants like our media, a good chunk of our business, sports, and half our political ruling class who are more than happy to pretend that doesn’t exist as long as they can make a buck.  Even more ironic, the media and half the politicians in particular will also go on and on about the evils of ‘big business’ while funding people who would be more than happy to slit our throats or nuke us into oblivion if they thought they could reasonably get away with it.  China - the country that tested the blowing up of a satellite but didn’t bother to try to minimize the impact of the space junk it would create.

    But yeah, we shouldn’t be worried where our stuff is manufactured.   Just keep telling yourself it doesn’t matter.

    Western society deserves to die at this point.  Just like the Romans at the fall we are fat, dumb, lazy and forgot what it took to get where we are today.  
    How's that tinfoil hat working?
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