Apple unexpectedly expands operations in China

Chinadaily reported that technology corporation Apple is expanding its operations in China with new applied research laboratories, aiming to exploit the production, research and development capacity of this billion-people country to create the best products.

"We have invested 1 billion yuan ($139.4 million) in our applied research lab in China. With the new expansion plan, our investment will continue to increase," said Isabel Ge Mahe, Apple's vice president and general manager of Greater China.

Apple said it will enhance the capabilities of its Shanghai applied research lab to support reliability, quality and materials analysis for all product lines.

Consumers choose products at an Apple store in Chengdu city, Sichuan province, China. (Photo: Chinadaily)

Later this year, the US company will also establish an applied research lab in Shenzhen, Guangdong Province, southern China, to provide more support to regional employees and strengthen cooperation with local suppliers. The new lab will strengthen testing and research capabilities for products such as the iPhone, iPad and Apple Vision Pro.

"We chose to locate our two applied research labs in China because of the country's manufacturing strengths and the strong presence of local suppliers," said Isabel Ge Mahe, adding that Apple's research and development staff in China has doubled over the past five years.

The move comes amid reports that Apple suppliers are moving production out of China.

According to Apple Insider , Apple and most or all tech companies that were previously completely dependent on China are trying to get rid of that dependence. In addition to US-China trade tensions, production has also been heavily affected by Beijing's strict COVID-19 prevention measures.

A report by investment bank TD Cowen published in early January said that in the four years since the start of the pandemic, Apple's revenue is estimated to have dropped by more than $30 billion. This comes from "insufficient supply to meet market demand due to production disruptions caused by component shortages, labor availability, and travel restrictions due to government regulations."

The report also pointed out that suppliers have spent a total of $16 billion since 2018 and will continue to spend more in the coming years to diversify production from China to India, Mexico, the US and Vietnam.

“Geographical and labor supply diversification can significantly reduce the impact of unexpected risks that disrupt production in the future,” the report said.

On the shift, an analysis of more than 1,000 financial records from key companies such as Foxconn shows that "iPhone production remains dependent on China, despite India's Tata Electronics having the potential to become a future iPhone exporter."

TD Cowen said Tata Electronics has only reached a capacity of 25 million units per year, enough to meet only about 11% of global demand.

Meanwhile, Mac and iPad have seen positive developments as factories move to Southeast Asia. TD Cowen's field study of the supply chain shows that Vietnam has developed into a major computer manufacturing center in recent years and "Vietnam's capacity can meet about 40% of the annual US Mac/iPad demand".

JPMorgan analysts estimate that by 2025, only about 25% of all Apple products, including Macs, iPads, Apple Watches and AirPods, will be manufactured outside of China.

Apple has not commented on the report or on its plans to reduce its overreliance on China.

Hua Yu (Source: China Daily)

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