Apple Inc. (NASDAQ:AAPL) – Why Apple Should Consider Building Its Own Assembly Supply Chain

Apple Inc. (NASDAQ: AAPL) last week warned of a $4-8 billion impact from COVID-19 lockdowns in China. Apple could do well to build its own assembly supply chain, according to Bloomberg Mark Gurman.

Apple heavily dependent on China: Despite Apple’s claim that its supply chain is global, the company is “extremely” dependent on China for manufacturing, Gurman said. Apple already gets many of its components, including those that go into the iPhone, iPad, Mac and other products, from the United States, India, Vietnam, Japan and others. parts of the world, noted the Apple writer. The real problem is with the assembly process – known as final assembly, testing and packaging, or FATP, which is mostly done in China, he said.

This model, according to Gurman, was launched by the CEO of Apple Tim Cook himself, as the company wanted to take advantage of lower labor costs and supportive government policies prevailing in the country. It has also helped the company sell its products in China, he added.

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Cook defends the Chinese strategy: Despite COVID lockdowns in China that have hurt production of Apple devices, driving down inventory and sales in recent weeks, Cook has staunchly defended its China production strategy on the earnings call, noted Gurman.

Cook may not be wrong, as Apple generated about $80 billion in hardware sales in the second quarter, ahead of the $62 billion expected by analysts, the Apple pundit noted.

Exit: Apple needs to stop handling all of its final assembly in China, Gurman said. He noted that while parts of the 2019 Mac Pro’s assembly are done in the US, some configurations of the new Mac Studio are assembled in Malaysia, some iMacs are made in Ireland and Thailand, and some recent AirPods are assembled in Vietnam.

Apple, however, manufactures its most prominent devices such as the iPhone, iPad and Apple Watch primarily in China, Gurman said. The company has tried to expand its iPhone assembly operations in Brazil and has been manufacturing units in India for several years, he added.

Related Link: Apple Analysts View Production Issues as Transitory, Recommend Buying on Weakness After Q2 Results

The number of iPhones built outside China is not yet significant, however, noted the Apple specialist. The company should work with its manufacturing partners or find new ones to set up more factories in India, Thailand, Ireland, Brazil, Vietnam, Malaysia and even the United States to diversify assembly. end of its products, he added.

Leaving China could hurt profits, but the concentration of its assembly process in the country will also mean the company may face continued disruption, Gurman said.

“With a cash hoard of nearly $200 billion and seemingly unlimited profits, perhaps Apple should also consider building its own assembly supply chain,” the analyst said.

Apple closed Friday’s session down 3.66% at $157.65, according to Benzinga Pro.

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