Citing undisclosed informed sources, Reuters is today reporting that global contract manufacturing services provider Foxconn will begin assembling Apple iPhones in India as early as 2019.

The report indicates that the move will include Apple’s most expensive iPhone models, such as the flagship iPhone X product family. It further cautions that Apple’s plans with Foxconn are not yet clear and could change. iPhoneX

In March of 2017, Apple announced an agreement with the government of India to have Taiwanese contract manufacturing services provider Wistron provide for  local manufacturing of the iPhone 6 and 6S smartphones from an existing production facility located in Bangalore. Noted in reports at that time were that Apple was discussing with Indian government officials on its desires to add various smartphone component manufacturers into India as well to support final assembly and export of finished products to other countries. Negotiations were centered on Apple’s demands for local tax concessions.

Today’s exclusive Reuters report indicates that iPhone manufacturing will likely occur at Foxconn’s plant in Sriperumbudur town in the southern state of Tamil Nadu. The facility already produces smartphones for China-based Xiaomi Corp. and Foxconn reportedly will invest an additional $356 million to expand plant capacity. This investment is expected to lead to as many as 25,000 local jobs. Unclear at this point is whether manufacturing will involve any supply network component manufacturing.

An additional unnamed source indicated to Reuters that the move would limit the impact of the existing trade war between the United States and China.

A report by Vietnamese state media earlier this month further indicates that Foxconn is considering an expansion of consumer electronics manufacturing in Vietnam in order to secure an additional manufacturing capability outside of China.

Apple declined to comment on the Reuters report.

 

Announcement Implications

This development, if borne out, may well represent an important and perhaps expected shift in Apple’s iPhone manufacturing strategy to hedge any impacts of an extended trade war.

In a Supply Chain Matters editorial commentary published in early November, we reiterated our belief that higher-margin product features were likely to be the predominant iPhone product strategy, with the significant mass of installed phones serving as the basis of lot of recurring content and services revenue growth into the future.  With growing evidence that the global smartphone market, except for certain emerging regions, is reaching a maturity stage, it seemed to us that Apple was staking on strategy on owning the premium end of the market. Evidence of that strategy was Apple’s efforts to forecast declining overall output of the most expensive iPhones for the current holiday and future quarters.

Thus, reports that Foxconn will assemble the high-end iPhone models in India is for us, a clear sign of a contingency sourcing strategy that will have India serve as both a domestic and international manufacturing option. The report of an additional Vietnam presence adds more credence to a strategy to counter the effects of longer-term tariffs.

Unclear at this point will be the reaction from the Trump Administration that has set its political sights on having some complement of popular iPhones assembled domestically in the United States. It strikes us that Apple will have to be very nimble in managing the effects of this latest news.

 

Bob Ferrari

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