Supply Chain Matters has published recent commentaries related to Apple’s existing product demand and supply network challenges. One related to Apple’s iPhone 12 product launch announcements and the time of execution at-hand, and the other, reports of key component shortages for the iPhone 12.
There have also been recent noteworthy developments specifically related to Apple’s supply network that we wanted to highlight for readers.
Contract Manufacturer Pegatron
Bloomberg and other Asia and U.S. media outlets reported earlier this month that Apple has suspended new business with iPhone contract manufacturer Pegatron after discovering labor violations regarding a student workers’ program. The violations occurred at the contract manufacturer’s Shanghai and Kunshan production campuses in eastern China. According to Bloomberg, Apple discovered that the Taiwanese based contract manufacturer allegedly misclassified student workers allowing them to work nights and overtime which is in violation of Apple’s Supplier Code of Conduct. Reportedly, these workers “went to extraordinary lengths” to cover up such violations. Apple has further indicated that it did not find evidence of forced use of underage labor, but rather falsified paperwork to hide violation.
According to an Apple statement, Pegatron has been placed on probation until corrective action is completed. The contract manufacturer itself has indicated that it will immediately take correction actions to insure that such practices do not occur. The contract manufacturer has reportedly already terminated a manager who was overseeing the student worker program.
The significance of this development centers on Pegatron’s role in expanding iPhone production volumes outside of China. While industry observers believe that current iPhone production will be affected, there is some belief that Apple may be considering placing iPhone supply orders with Pegatron rival and China mainland based Luxshare Precision in 2021. More on this is noted below.
Further Global Expansion
Regarding production outside of China, Pegatron’s Board of Directors have approved a $150 million investment to build manufacturing facilities in India, expanding its current operations in Vietnam and is further considering a potential production presence in the United States. According to a published report by Taipei Times, a new factory in India is expected to begin production in the second half of the year 2022. Pegatron’s CEO reportedly further indicated that there is “client demand” for U.S. based production as well, and that the possibility is “under investigation.”
Luxshare Makes a More Visible Presence
While on the topic of Luxshare Precision, The Economic Times reported in late October that Foxconn, Apple’s top iPhone contract manufacturer has established a corporate task force to fend-off the growing clout of Dongguan China based Luxshare.
Citing three informed sources, the publication indicated that mainland China based Luxshare posses a serious threat to Taiwan based Foxconn’s its dominance as an Apple supplier. The report indicated that Luxshare, best known for producing Apple AirPods, acquired two iPhone assembly factories in July that formerly belonged to contract manufacturer Wistron.
Foxconn has since denied any such task force presence.
The most interesting angle of this Economic Times report is a linkage to new evolving China policies that aim to decouple China’s domestic high-tech manufacturing capabilities from those of deemed foreign sources which include Taiwan, the U.S. and other countries. Reference is made to China ‘red supply chain”, where firms with apparent direct government support increasingly take on more of the manufacturing services for Apple and other global firms.
What it Means
We highlight these related reports because they point to a many moving parts related to shifting sands and indeed a decoupling of high-tech and consumer electronics supply networks over the coming years.
In a blog commentary we published in September we called attention to a brewing cold war status surrounding the U.S. and China surrounding semiconductor fab production supply network capabilities and the linking of Taiwan based global semiconductor fab producer TSMC’s May announcement for building a new 8 nanometer fab facility in the United States.
We opined that for existing high-tech industry supply chain management or strategic procurement teams, the implication remains a highly sensitized cycle of geo-political tensions with short and longer-term implications. This certainly includes Apple since indeed, Apple is a prized icon caught in the middle of such de-coupling.
Like may other global manufacturer’s, China’s domestic market represents very significant stakes for future revenues and profits. On the flip side, Apple has to be able to practice and manage supply network risk mitigation.
Thus are the continuing moving parts of Apple supply network in the coming months and years. For our part, our research arm is working on 2021 Predictions for Industry and Global Supply Chains and rest assured, the real potential of the decoupling of high tech and consumer electronics demand and supply networks will be included.
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