If Apple returns to the US to produce Chinese manufacturers, the position does not follow

Electronic enthusiasts’ early eight-point news “Let the job return to the United States” and “let the manufacturing industry return to the United States” is a major focus of US President-elect Trump’s future administration. At the beginning of the campaign, Trump said that he would let Apple put the iPhone back into the US for production. Recently, Foxconn issued a statement saying that it is expanding its business in the United States and initially assessing potential investment opportunities in the US to amplify local operations. The relevant investment has not yet been finalized. Foxconn’s statement, the reality of the iPhone’s move to the United States, seems to be a step closer.

Apple's sales of more than 200 million mobile phones each year, the supply chain has a deep root. If the Apple assembly plant moves away, will China's supply chain related companies follow? The Daily Economic News reporter interviewed many upstream parts suppliers of Apple in China, and they said they did not plan to build a factory in the United States. A senior Apple core supplier in Shenzhen told reporters: "If the iPhone returns to the US, it will directly lead to a longer supply cycle, which will increase the risk of inventory increase and redundancy, yield, etc., which directly leads to the cost of the iPhone."

At the same time, the reporter noted that with the rise of domestic brands, Apple's ability to control the supply chain is also weakening.

Apple's cost of relocation will rise

Apple's 2016 supplier list shows that Apple has 18 assembly plants around the world, 14 of which are located in China.

"Daily Economic News" reporters interviewed some domestic supply chain companies and learned that if Apple manufacturing moves to the United States, at least most of China's suppliers will greatly reduce profits based on logistics, plant and labor costs, as well as different cultural soil environments in China and the United States. And other aspects to adapt to cost considerations without relocation.

Take Apple's mobile phone glass supplier Lansi Technology as an example. Peng Mengwu, the company's director-general, told the reporter of "Daily Economic News" that Lansi would not consider moving to the United States.

Peng Mengwu said that Lansi Technology has conducted research on the construction line in the United States. The electricity and land costs are cheaper than those in China, but the biggest constraint is the labor force. Lance has nearly 70,000 workers, all of whom are under 45 years old. The labor force in the United States is more than 45 years old. The cost is much higher. It is difficult for American workers to accept the "8+2" work system. The average wage of five insurance and Jin Lansi workers is between RMB 4,500 and RMB 5,000. This is a reasonable system.

Apple executives in an important supply chain in Shenzhen told reporters that "the problem of Apple's manufacturing relocation costs is not the first. From the perspective of the mobile phone industry, panels, batteries, hardware, camera modules, circuit boards, China's supply chain system. It's all ready, and the response is extremely fast. For example, the hardware mold can be done in Shenzhen for 10 days, and it may take a month in the US."

The executive said that Apple has received 90% of the profits of the mobile phone industry, which is inseparable from the Chinese supply chain. It is inevitable that the cost of leaving China will rise. If the iPhone is returned to the US for production, it will directly lead to a longer supply cycle. If parts and raw materials produced abroad need to be sent to the United States continuously, it needs to be ordered several months in advance, which will increase the risk of inventory increase, redundancy and yield. This directly leads to an increase in the cost of the iPhone, and the global supply chain's shift to the Chinese market will not change.

According to reports, as early as June of this year, Apple has already proposed the withdrawal of all Asian production lines to the United States with OEMs such as Foxconn and Heshuo Technology, but they have all been rejected.

The tax issue is also an important consideration for Apple's move. Trump claims on social networks that the United States will impose significant tax cuts and policy loosening on businesses, reducing the current corporate income tax rate from 35% to 15%. However, companies that relocate factories to other countries and hire employees in other countries who want to sell their products back to the United States will be subject to a tariff of up to 35%.

Peng Mengwu believes that China's manufacturing base has been rapidly improved in recent years, but there is room for further reduction in overall manufacturing income tax. At present, the ordinary manufacturing industry pays 25% of the income tax, which has room for reduction. At present, the high-tech enterprise tax rate is 15%, and there is room for reduction.

China's supply chain capacity is growing

The success of Apple products, in addition to innovation, has a strong supply chain. According to the "Daily Economic News" reporter, two companies in Shenzhen - Desai Battery and Xinwangda, have accumulated more than half of the iPhone battery. There are still many Chinese companies that have a similar position in the mobile phone supply chain.

Shenzhen Ou Feiguang's "Investor Relations Activity Record Form" disclosed on the Interactive Exchange of Shenzhen Stock Exchange on December 20th shows that the company's touch display module has an annual output value of more than 10 billion yuan, ranking first in the world and in the leading position in the industry. On November 7, Ou Feiguang paid a consideration of US$234 million to acquire Sony Electronics South China Co., Ltd., which enhanced the development and packaging technology of top camera modules and accelerated the process of entering the Apple supply chain.

The first in China, which can mass-produce dual-camera modules, is currently ranked first in the world in terms of 8.9% of the camera module market, and has already supplied high-end models such as Huawei mate9 and p9.

In terms of fingerprint identification chips, Huiding Technology is currently the only chip company that can provide coating, cover, hidden and live fingerprint detection series identification technology, and quickly formed a challenge to the international giant FPC. The CIC Research Report shows that In 2015, Huiding Technology's market share accounted for less than one-tenth of FPC; in July 2016, the two sides had already achieved similar results in the domestic mobile phone market.

A senior metal shell manufacturing company in Shenzhen told the Daily Economic News reporter that "China's mobile phone supply chain has formed in mobile phone assembly, battery, hardware, camera module, touch module, glass technology, chip packaging, and charging module. The huge system has produced high efficiency and synergy, and it has incomparable advantages in the world compared to the United States and India. For a long time, electronic manufacturing has maintained a trend of moving to China, and this trend is difficult to change in a short time. ”

Supply chain differentiation trend

The reporter noted that in recent years, Apple's ability to restrain the supply chain has gradually weakened, while domestic mobile phones have gradually increased their dominance and bargaining power over suppliers.

Taking Huawei and OPPO as examples, according to the choice data, in 2015, there were 25 new three-board companies with Huawei as the largest customer, with total sales of 39.24 yuan, including types of software, accessories, testing equipment, and communications. Network class, etc. OPPO has its own factory, and the supply chain production line is gradually upgrading and expanding. After Lei Jun personally took charge of the Xiaomi supply chain, he also achieved initial success, and the control over the supply chain was also improving.

Domestic mobile phone brands are beginning to cultivate more adaptable supply chain companies. For example, Lansi Technology and Huawei have jointly developed the Huawei-provided mobile phone Magic. The revenue of Lansi Technology from Apple has dropped from nearly 70% to less than 50%.

Another typical example is that Apple used to be the biggest customer of Sony's camera, but at present Sony has become a strategic partner of OPPO and vivo. The latter two companies have tens of millions of dual cameras.

In the down cycle of Samsung and Apple, it is a good opportunity for domestic manufacturers to establish a good supplier ecosystem and strengthen their ability to ship and capacity, software and hardware innovation.

Smartphones with sales of 1.5 billion units a year are a huge market. CLSA technology analyst Cherry Ma pointed out in the media that two major trends will drive growth in this area: smartphone manufacturers upgrade cameras, sound effects And appearance; consumers turn to Chinese mobile phone manufacturers. "This year, there will be as many as 20 mobile phones equipped with dual-cameras with better image quality, compared to only one last year. Although global mobile phone sales have only increased by 1% to 2% this year, the total sales of Chinese brand mobile phones are growing at a rate of 20%. ."

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