AI: Apple makes more iPhones in India. RTZ #525
...but the longer term AI/tech supply chains beyond China are HARD
Apple is making headway in India, far beyond its two Apple Stores in Mumbai and Delhi last year.
In recent days, I’ve highlighted how this AI Tech Wave, in all its LLM AI, self driving cars and robotics ‘forms’, is so dependent on the US managing its relationships with China, while enlarging its supply chain options to India, Europe, Mexico and beyond.
Today’s piece is to underline further how dependent the US is on ‘threading the needle’ with China for our tech economy, and how hard it is lower our supply chain dependence there.
Despite both our political parties really, really wanting to wave a wand and make the US not depend on the globalization optimized supply chains rooted deeply in China. AND despite all our near term hopes of building more self-sufficiency driven fabs and manufacturing plants here in the US, or countries we deem to be closer friends and allies. Especially for our biggest tech companies like Apple, Nvidia and so many others.
A few days ago, I highlighted how Nvidia is so focused on India for some of that diversification. Today, would like to discuss Apple in India.
The Information’s “Apple Taps India to Learn How to Build New iPhone”, which actually is a relatively ‘good news’ story that Apple is making strides to make almost 15% of its iPhones in India. And even more of them there soon.
Never mind that we need the Herculean hope of Taiwanese tech behemoths ilike Foxconn to help us build and train heaps of folks in India to do what we’re doing there in the first place. Specifically,
“When Apple CEO Tim Cook visited China last week, he pledged to government officials that the company would continue to increase its investment in the country, where the vast majority of its products are made, according to the state-run Xinhua news agency. But Apple recently reached a new milestone in its manufacturing efforts in India, which could help it one day reduce its dependence on China.”
“For the first time, Apple is using an Indian factory to do the early manufacturing work for the base model of next year’s iPhone 17, according to two people with direct knowledge of the situation. The choice of an Indian factory for this stage of iPhone development—figuring out how to translate a prototype designed in Cupertino into a device that can be mass produced—highlights the progress Apple has made in diversifying its supply chain to India from China and its confidence in the capabilities of Indian engineers.”
It’s not easy work:
“That’s because this work is the most challenging and resource-intensive aspect of Apple’s product development, say current and former Apple employees. Internally known as New Production Introduction or NPI, the work involves tweaking the iPhone’s design and materials and experimenting with different types of equipment and manufacturing processes to ensure that millions of iPhones can be produced a day across different locations with minimal defects. The majority of this development typically takes place between October and May.”
“Apple has regularly pushed back release dates or even canceled entire products because of how difficult they were to scale up for mass production, the current and former employees said.”
Note that the more complex phones are still going to be made in China:
“The primary sites for development of the iPhone 17 Pro, a more complicated device than the base model, will still be in China. But development of the lower-tier iPhone 17, internally code-named V57, is happening at a factory operated by Taiwan’s Foxconn Technology in the southern Indian city of Bangalore, the people said.”
“Engineers from both Apple and Foxconn, many of whom were hired locally, are working at the factory on the device, they added. If successful, Apple will lock down the manufacturing steps of the iPhone 17 in India by next summer and begin replicating it at secondary sites like Zhengzhou, China, where Foxconn operates the world’s largest iPhone factory.”
The efforts to get even this far have been years in the making:
“Apple began assembling older iPhones in India in 2017 originally to avoid high import taxes on the Chinese-made devices, which made them even more expensive for Indian consumers. Still, the vast majority of the iPhone’s components were shipped to India from China rather than made locally.”
“In recent years, Apple has started manufacturing newer and more premium iPhones in India. It also has persuaded some component suppliers to set up factories in the country, The Information previously reported.”
Of course there are short term dividends politically and economically for Apple’s business IN India as well:
“Some of Apple’s efforts have been in response to rising demand from Indian consumers. Bloomberg reported earlier this year that Apple’s revenue from India rose 33% to around $8 billion in the year to March, with the iPhone accounting for half the sales.”
“Last year, Apple opened its first two retail stores in India, with Cook on hand at one of the stores to welcome its first customers. This year, Apple began manufacturing the full range of iPhone 16 models in India, in addition to China, and made them available for sale globally around the same time as the iPhone’s launch in the rest of the world. It was the first time factories in India assembled all four models, though the company still relied on Chinese factories to learn how to build them first.”
And India’s biggest companies are growing their capabilities to build these kinds of devices at scale:
“Meanwhile, Tata Group, India’s largest business conglomerate, is becoming a major assembler of iPhones and has made several major investments over the past year to expand its production capacity. Foxconn, the other big iPhone assembler in China, is building its second largest iPhone factory after Zhengzhou in Bangalore, where development of the iPhone 17 already is taking place in a building on the unfinished site, one of the people said.”
“Apple’s efforts to build iPhones in India haven’t been without growing pains. Current and former Apple employees and those in its supply chain say the defect rates for manufacturing the iPhone and its related components in India are much higher than in China partly due to a lack of experience among local engineers. Tata, for example, has struggled to build the iPhone’s metal frames with minimal cosmetic defects, former Apple employees said.”
And it’s not always been smooth operating sailing in India as well:
“IPhone factories in India also have had issues in the past with rioting over unpaid wages and poor working conditions. Recently, fires have broken out and disrupted production at factories in India assembling the iPhone and its related components because of lapses in safety and operating procedures.”
But it’s all a long way still away to diversify just iPhone production from China in a meaningful way:
“Former Apple employees and others involved in its supply chain said Apple’s long-term goal is to move half of iPhone factory capacity out of China. However, its total iPhone production can be more than 200 million units a year. Analysts and people familiar with Apple’s supply chain in India say the country currently only has the capacity to produce about 30 million iPhones a year.”
And this whole set of developments highligh the millions of people needed to build these iPhones in both countries:
“Apple’s desire to shift some iPhone development out of China could be politically sensitive given that the country contributes millions of workers to Apple’s supply chain each year. China has relied on Apple to help build up some of its biggest consumer electronics suppliers, The Information has previously reported.”
Just ponder on that last paragraph for a moment, particularly on the ‘millions of workers to Apple’s supply chain each year’ bit.
Most people don’t realize that Apple has employed over 33 million workers in China to build Apple phones and gadgets since Steve Jobs unveiled the iPhone in 2007. That compares to the 23 million population of Taiwan, which is at the heart of the geopolitical issue between China and US.
Yes, THAT Taiwan, where Taiwan Semiconductor (aka TSMC) makes most of the chips, AI and otherwise that makes our world go. Yes, the one that makes most of the chips that makes Nvidia go, all the AI data centers US big tech companies expending hundreds of billions on today.
The scale of tech supply chains are immense, especially in the millions of workers, and support companies that are needed to build the software AND HARDWARE products that promise the amazing tech growth dividends to come.
iPhones, AI Data Centers are just the beginning to go make AI go further in this AI Tech Wave before us. If we want the truly amazing AI driven self driving cars, and robots (humanoids or not), most of the deep supply chains and the millions of workers, are also based in China.
Regardless of how fast we put some chip factories and ‘reshore’ some manufacturing facilities here. US is a nation of under 350 million vs 1.4 billion plus in US and China each. Supply Chains are HARD, and need millions of trained workers in the millions. Regardless of the automation of said fabs, factories, and plants. And the cool demos on stage.
In the end analysis, US and China, will need to keep ‘threading the needle’. With a LOT of help from countries like India, Mexico, Indonesia, and of course Europe. The iPhone ‘reshoring’ in this story just shows how real these realities are, and how long it takes to move the manufacturing needle even a little bit.
The world needs to figure out this ‘globalization beyond and around China’ thing. And geopolitical confrontations and AI ‘spaces races’ are not going to get us there. For the long-term prosperity of the world, AI driven or not.
Otherwise, China will find a way, and the global tech world will be forked. In terms of balkanized core global technology platforms, ecosystems, and supply chains. Where the US has typically been the leader. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)