TOKYO, Jan. 29, 2020—Is Apple Inc. a China hostage, or is it just feigning its next move?
On Jan. 28, Apple reported an11 pct October-December quarter net income rise of $22.2 billion on a 9 pct revenue growth to $91.8 billion year-on-year, both record highs, on strong worldwide sales of iPhone 11, Apple Watch, and services.
At a conference call, Apple CEO Tim Cook, asked about the Wuhan coronavirus effect on his business, confirmed that China business operations – retail sales and production – are affected, in Wuhan and outside the city, yet he said the virus scare’s influence on the Apple supply chain was ‘less clear at this time.’ Apple said it has ample inventory of parts to continue manufacturing.
China is effectively Apple’s mother factory for much of its product lines especially iPhones, assembling parts and components manufactured by some 200 suppliers in China, Taiwan, the United States, Japan and elsewhere. Taiwan’s Foxconn and Asia Vital Components are operating in Wuhan, and a total of about 40 suppliers are dotted about in five Chinese provinces. Apple hires about 5 million Chinese workers in China.
Apple’s fat profit margin reflects in part its management prowess to optimize the economy-of-scale merits by consolidating iPhone manufacturing operations in China while tapping low-cost Chinese labor. Apple also clearly sees China a green new retail market for its products, its share much lower than elsewhere for iOS devices in a largely android-skewed Chinese market, unlike matured markets like the United States, Japan and Europe.
All these may be the reasons why Cook demurred on the impact of the coronavirus scare, sounding like Apple is like hostage of China, its iPhone manufacturing trapped there and nowhere else because of heavy concentration there. Even so, if the pandemic escalates and spreads wider than the SARs epidemic, Cook may find manufacturing diversification necessary. Where would he go to? Vietnam, Thailand, India, Indonesia, Myanmar, Laos, Cambodia? Or to the United States as Trump so demands (won’t happen).
–Toshio Aritake