A senior Foxconn executive says that the company could move production of all iPhones destined for the US out of China if the current trade war demands it. In comments reported by Bloombergand The Wall Street Journal, the head of Foxconn’s semiconductor business group, Young Liu, said, “25 percent of our production capacity is outside of China and we can help Apple respond to its needs in the U.S. market.”
“We have enough capacity to meet Apple’s demand,” Liu said at an investors’ conference. Apple has yet to instruct Foxconn to move production out of China according to Liu.
Apple might need to rethink manufacturing after tariffs up to 25 percent come into effect at the end of June. The new tariff is expected to apply to the wholesale cost of devices like phones, laptops, and tablets imported from China to the USA, the market where a third of Apple’s iPhone revenue comes from. It would be up to Apple to decide how much of the extra cost to pass on to US consumers. Analysts quoted by Bloomberg suggest that passing the cost of the tariffs on in their entirety could result in price increases of between nine and 16 percent, resulting in a drop in demand of anywhere between 10 and 40 percent. Alternatively, absorbing the cost entirely could hit Apple’s earnings per share by six to seven percent.
Foxconn has a big incentive to help Apple since the company is said to be responsible for as much as half of Foxconn’s revenue. A drop in demand for iPhones would lead to a drop in manufacturing demand from Foxconn. The manufacturer is already preparing to shift some iPhone production to India in an attempt to avoid India’s 20 percent import duties.
However, with China planning to retaliate to the Trump administration with a tariff increase of its own, it will be difficult for Apple to escape the impact of the trade war entirely.
Amazon's brick and mortar empire continues to expand, after the company opened its second, larger cashier-free store in Park Avenue, New York City today.
In addition to groceries, the store will offer ready-to-eat meals and snacks, including offerings from locals bakeries and vendors Dominique Ansel, Magnolia Bakery, Ess-a-Bagel, Epicured, Bien Cuit, Hale & Hearty and Terranova Bakery. There will also be Amazon meal kits and freshly brewed coffee and espresso on sale, following the launch of coffee at a Go store in Seattle.
Amazon relented and agreed in April that Go stores would start accepting cash, with the Vesey Street New York store becoming the first to do so. The newly opened store will accept cash, as will all future Go stores.
With US iPhones currently made in China, there has been much concern about the escalating trade war between the two countries. The worst-case scenario would be a 25% tariff on iPhones entering the US, which would either push up prices, hurt Apple’s bottom line, or both.
But Foxconn has said that the iPhone would be able to escape this fate, as the assembler has enough capacity in other countries to supply all US iPhones …
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Bloomberg quotes a senior Foxconn exec speaking at an investor briefing.
The Cupertino, Calif.-based company’s primary manufacturing partner has enough capacity to make all iPhones bound for the U.S. outside of China if necessary, according to a senior executive at Hon Hai Precision Industry Co. The Taiwanese contract manufacturer now makes most of the smartphones in the Chinese mainland […]
Hon Hai, known also as Foxconn, is the American giant’s most important manufacturing partner. It will fully support Apple if it needs to adjust its production as the U.S.-Chinese trade spat gets grimmer and more unpredictable, board nominee and semiconductor division chief Young Liu told an investor briefing in Taipei on Tuesday.
“Twenty-five percent of our production capacity is outside of China and we can help Apple respond to its needs in the U.S. market,” said Liu, adding that investments are now being made in India for Apple. “We have enough capacity to meet Apple’s demand.”
The company will respond swiftly and rely on localized manufacturing in response to the trade war, just as it foresaw the need to build a base in the U.S. state of Wisconsin two years ago, he said.
Back in April, Foxconn confirmed reports that it will begin mass-production of iPhones in India this year. This is believed to be primarily geared to serving the local market, avoiding Indian import tariffs, but it sounds like Foxconn would be in a position to boost capacity sufficiently to assemble US iPhones too.
Rival Apple product assembler Pegatron is also believed to be moving some production of MacBooks and iPads out of China this month.
Some Apple accessories are already taxed at 25% as they enter the US from China, with Apple absorbing this cost.
If Foxconn is right, it doesn’t solve all of Apple’s trade war related threats. There has been a growing movement in China to boycott Apple products in retaliation for US policy, as well as talk of the Chinese government making life difficult for Apple.
Goldman Sachs recently warned that the worst-case hit to Apple’s bottom line could be a 29% drop in global profits. That is, however, based on an extreme scenario of China banning the sale of iPhones within the country. Apple CEO Tim Cook recently said that he considers it unlikely that China would target Apple.
Headline: "Foxconn: Apple Has Capacity to Make All US-Bound iPhones Outside of China if Needed"
The buried lede: "They'll pick a different low-wage country instead."
(You might infer from the headline that they'll simply make a US-bound iPhone in, I dunno, the US. Nope.)
Only those as naive as you would ever infer that the headline meant moving to US-based manufacturing.
Headline: "Foxconn: Apple Has Capacity to Make All US-Bound iPhones Outside of China if Needed"
The buried lede: "They'll pick a different low-wage country instead."
(You might infer from the headline that they'll simply make a US-bound iPhone in, I dunno, the US. Nope.)
They’re not stupid. That would double the price of a $1000 device
Headline: "Foxconn: Apple Has Capacity to Make All US-Bound iPhones Outside of China if Needed"
The buried lede: "They'll pick a different low-wage country instead."
(You might infer from the headline that they'll simply make a US-bound iPhone in, I dunno, the US. Nope.)
If only it were as easily done as it is said. If new tariffs on China start on July 1, it would take Foxconn months to shift production from China to India. Additionally, they would have to retool new factories for the 2019 versions of the iPhone in the midst of the production line move, as I’m sure the retooling process has already started in China. Foxconn is not going to spend all this money without charging Apple for it, and that charge will be enormous.
The new tariffs going in effect on July 1 would severely damage the Apple’s 2019 holiday season sales. There will be a shortage of Indian-made iPhones for the holiday season, and the Chinese made iPhones would be significantly more expensive due to the tariffs.
Let’s hope Tim has negotiated to save Apple from the tariffs, as it won’t be pretty if the Apple products become subject to the tariffs. Tim is playing with fire, being so nonchalant about what may be a serious hit to the future of Apple and being unprepared for what’s about to come even though he was warned about it over 2 1/2 years ago. Had he heeded the warnings then, Apple would have been much better positioned now to weather the trade war with China.
TOKYO (Reuters) - Japan’s Tokyo Electron, the world’s No.3 supplier of semiconductor manufacturing equipment, will not supply to Chinese clients blacklisted by Washington, a senior company executive told Reuters.
Chinese and U.S. flags are set up for a signing ceremony during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. REUTERS/Jason Lee
The decision shows how Washington’s effort to bar sales of technology to Chinese firms, including Huawei Technologies, is ensnaring non-American firms that are not obliged to follow U.S. law.
China, which is locked in a crippling trade war with the United States, is pushing to build its semiconductor industry to reduce its reliance on U.S., Japanese and European suppliers for chip-making machinery.
“We would not do businesses with Chinese clients with whom Applied Materials and Lam Research are barred from doing businesses,” the executive said, referring to the top U.S. chip equipment firms.
“It’s crucial for us that the U.S. government and industry see us as a fair company,” he said, citing Tokyo Electron’s long U.S. partnership since the 1960s, when it started off as an importer of U.S. equipment.
He did not want to be named given the sensitivity of the matter. Applied Materials and Lam Research declined to comment.
Another major Japanese chip equipment supplier is also considering halting shipments to blacklisted Chinese firms, a person familiar with the matter said.
“The issue is beyond something we can decide on our own,” said the person, who also declined to be identified.
Executives at other equipment suppliers said they were communicating closely with the Japanese industry ministry.
“We haven’t received any specific instructions from the ministry,” one of the executives said. “We are aware that we could be in deep trouble if we take advantage of the U.S. export ban to expand businesses with China.”
DIFFICULT TO REPLACE U.S. RIVALS
The Tokyo Electron executive did not specify the names of the Chinese clients, but state-backed memory chipmaker Fujian Jinhua Integrated Circuit Co is currently on a list of entities that cannot buy technology goods from U.S. firms.
Fujian Jinhua did not respond to an emailed request for comment. A handful of other Chinese companies and research institutions are on a ‘red list’ that U.S. companies have been advised to avoid.
Huawei’s chip arm, HiSilicon, is a so-called fabless company focusing on chip design and thus is not normally a buyer of chip-manufacturing gear. But Huawei also faces major risks from non-U.S. suppliers adhering to the U.S. blacklist.
British chip designer ARM, owned by Japan’s SoftBank, has halted relations with Huawei, potentially crippling the Chinese company’s ability to make new chips for its future smartphones.
But Taiwan Semiconductor Manufacturing Co, global leader in chip production and maker of many Huawei chips, has said it would continue to be a supplier to Huawei.
U.S. law specifies that any product comprising 25% or more U.S. content is subject to the U.S. export control restrictions.
But the Japanese chip equipment executives did not cite that as a reason for cutting off supplies to some Chinese companies.
“It’s not impossible for Japanese companies like Tokyo Electron to replace their U.S. rivals and complete production lines for China,” an executive at a U.S. chipmaker said. “But in reality, that’s very difficult considering a U.S. backlash.”
CHINA CHIP TECHNOLOGY LAGS
Five Japanese companies rank among the world’s top 10 chip equipment firms. The highly specialized chip equipment industry is relatively small, but the gear is strategically critical for all semiconductor manufacturers.
Making chips involves numerous processes that require different types of equipment. Each market segment is typically dominated by just a few players.
Tokyo Electron controls nearly 90% of the market for microchip coaters and developers. It competes directly with Applied Materials and Lam Research in some segments.
Beijing has been investing heavily to grow domestic chip equipment suppliers as part of an effort to achieve its goal of producing 70% of the semiconductors it uses by 2025.
But industry sources say technologies at those suppliers are still far behind, leaving China dependent on imported equipment.
Today, only 16% of the semiconductors used in China are produced in-country, half of which are made by Chinese firms, according to the Center for Strategic and International Studies, a Washington-based think tank.
But aggressive investments by local chipmakers and foreign players like Samsung Electronics made China the world’s No.2 market for chip equipment last year.
Many chip equipment manufacturers are forecasting substantial profit drops this year as the China-U.S. trade war dampens demand for chips and chip equipment globally.
Reporting by Makiko Yamazaki; additional reporting by Stephen Nellis in San Francisco, Editing by Jonathan Weber and Himani Sarkar
