Faced with production challenges, Apple continues to make changes to its supply chain. Now, the company is reportedly moving “some AirPods and Beats headphone manufacturing to India for the first time”.
This is just another chapter in Apple’s supply chain diversification strategy – one that I think is a positive for Apple stock (AAPL) – Get Apple Inc. Report and its holders.
Figure 1: Apple Stock: Changes To Supply Chain Are Great News
Unsplash
(Read more from Apple Maven: AAPL Bears Do A Happy Dance: Were They Right?)
Apple: moving away from China
About two years ago, I spoke about Apple’s reliance on China to make its popular tech gadgets. Back then, nearly half of the Cupertino company’s top 200 suppliers were located in what is perhaps the world’s largest manufacturing hub.
But even back then, another production powerhouse was starting to gain notoriety. India committed $6.7 billion to the country’s smartphone manufacturing capabilities through an incentive program.
Apple was certainly one of the Indian government’s main targets, following a year of increased tensions between the US and China that led to the escalation of a trade war between the two countries in 2019.
Earlier in 2022, I revisited Apple’s supplier list and observed something interesting (see the pie chart below). Down from 48% in 2020, China mainland was home to only 39% of Apple’s top suppliers this year. The “Other Asia” group, which includes India, leaped from 17% to 28%.
Figure 2: Location of supplier facilites by main region, 98% of total spend.
DM Martins Research
The pie chart above is likely to become even more evenly split, in my opinion. In addition to AirPods and Beats production mentioned above, iPhone 13 and possibly 14 will also be made in India. Meanwhile, Vietnam and its neighbors continue to gain prominence as key suppliers.
Bloomberg reports that “iPhone exports from India […] are set to reach $2.5 billion in the 12 months through March 2023.” The figure still represents less than 1% of iPhone revenues in the past four quarters, but I expect this number to climb further in the next few years.
The benefits of supply chain diversification
COVID-19 has shed light on what has been one of Apple’s main weaknesses: overreliance on China for device production. Supply chains have been disrupted in 2022 in great part due to pandemic-driven plant shutdowns in the Far East.
Reaching out to India and other Asian countries as part of the solution can only be good news for Apple and its stock. Once the supply chain ceases to be a drag to Apple’s financial performance, maybe AAPL shares will find room to climb further from their current levels.
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