Shulou(Shulou.com)11/24 Report--

Beijing, September 7 (Xinhua) this fall, Apple will produce some of its iPhone flagship phones outside China for the first time. This is a small but significant change for a company that has established one of the world's most complex supply chains in China. However, the development process of the upcoming iPhone 14 shows how complicated it will be for Apple to really leave China.

It has been 15 years since China and the United States co-created the product iPhone. Today, Apple's Chinese employees and suppliers contribute more complex work and precision parts to the flagship than ever before, including manufacturing design, speakers and batteries, according to people familiar with the matter. As a result, iPhone has changed from a product designed in California and made in China to a product jointly created by the two countries.

The key work provided by China in iPhone development reflects the country's progress over the past decade and the new level of participation of Chinese engineers in iPhone development. After China attracted companies to use its factories with relatively cheap labour and unparalleled capacity, the country's engineers and suppliers have moved up the supply chain to get a bigger share of US companies' spending on developing high-tech products.

▲ Apple CEO Cook

China is taking increasing responsibility for iPhone development, which could challenge Apple's efforts to reduce its dependence on China. Under the influence of the external environment, Apple is trying to reduce its dependence on China.

Diversified production still requires Chinese Apple to plan to produce some of the iPhone in India, but Chinese companies with operations in India will still play a key role. In Chennai, India, Foxconn, a Taiwanese supplier, will lead Indian workers to assemble the iPhone with the support of nearby Chinese suppliers, including LinkedIn, whose subsidiary supplies chargers and other components to iPhone, according to people familiar with the matter. China's BYD has also set up a display glass cutting business in India, these people said.

"they [Apple] want to diversify production, but this is a difficult road," said Gene Munster, managing partner of Loup Ventures, the venture capital firm. "they are too dependent on China."

Apple declined to comment. Foxconn, BYD and LinkedIn did not respond to requests for comment.

Travel disruptions caused by the rise of Chinese engineers due to the COVID-19 epidemic have exacerbated Apple's plight. In 2020, Apple was forced to overhaul its business, abandoning the practice of sending a large number of California engineers to China to design its flagship iPhone assembly process.

Instead of putting employees under prolonged isolation, Apple has begun to devolve power and hire more Chinese engineers in Shenzhen and Shanghai to lead key design elements of its best-selling products, according to people familiar with the matter.

▲ Chinese engineers begin to take charge of key design elements

Apple's manufacturing and product design teams began making late-night video calls with their Asian counterparts. After the resumption of travel, Apple tried to encourage employees to return to China, offering them a daily allowance of $1000 during a two-week quarantine and four weeks of work, according to people familiar with the matter. Although they can receive an allowance of up to $50,000, many American engineers are reluctant to go because they are not sure how long they will need to be quarantined.

Apple encourages Asian employees to host meetings once hosted by California colleagues when American employees are unable to travel, according to people familiar with the matter. These employees are also responsible for selecting some Asian suppliers of future iPhone parts.

Apple is increasingly relying on China to provide well-paid employees for these jobs. According to GlobalData, which tracks hiring trends in the technology industry, Apple posted 50 per cent more jobs in China this year than for the whole of 2020. Many of these new employees are Western-educated Chinese citizens.

The sharp increase in the value of Chinese suppliers has been accompanied by changes in the way Apple works, and it uses more and more Chinese suppliers. More than a decade ago, China contributed little to the value of iPhone production, mainly by providing relatively cheap labour and assembly equipment using components shipped from the United States, Japan and South Korea. According to a study by Xing Yuqing, an economics professor at the National Policy Institute in Tokyo, the job accounts for about $6, or 3.6 per cent, of the value of iPhone.

But gradually, China has trained local suppliers, which are beginning to replace Apple's suppliers around the world. Chinese companies began producing loudspeakers, cutting glass, supplying batteries and making camera modules. Chinese suppliers now account for more than 25 per cent of iPhone value, says Mr Xing.

Wang Dan, a technology analyst at Longzhou Economic News, an independent economic research firm, believes that these increases show that China has expanded its control over the smartphone supply chain. "this trend has not slowed down." He said.

Manufacturing in China helped iPhone sell well for most of the outbreak, and Apple's reliance on manufacturing in China paid off. Although other countries halted production for some time in 2020 and 2021, steady production in China helped Apple increase its smartphone market share, selling the most iPhone in history, analysts said. For iPhone, which has a history of more than ten years, this is a remarkable achievement. It has now shifted from providing revolutionary innovation to incremental improvement.

Analysts expect Apple to release four iPhone 14 models this year, with smaller bangs for face recognition than previous models. Apple released the iPhone 14 a week earlier this year than in the past, which could boost sales by a week and boost revenue in the current quarter. Apple is also expected to increase the price of the iPhone 14 Pro model by $100 to more than $1600 to offset some of the rising cost of components.

▲ iPhone 14 will be released tonight

Apple hopes iPhone 14 will build on the success of the past few years. While other smartphone makers have cut production because of the global economic downturn, Apple has asked its suppliers to produce more phones than it did a year ago, according to financial firm Hainer International Group. The increase in manufacturing orders is a testament to the resilience of Apple's wealthy customers, whose deep pockets enable them to buy high-priced smartphones in the face of rising inflation and recession.

"there is a huge gap between rich and poor in consumer spending in the smartphone industry," said Wayne Lam, a technology analyst at research firm CCS Insight. "Apple is safe relative to its competitors."

When the news media and Apple employees gather at Apple's California headquarters for the launch of iPhone 14 in the early hours of Thursday, Beijing time, Apple will emphasize the functions of the phone, not how it is made. The only sign of a change in this process will be flight traffic at nearby San Francisco International Airport.

A banner for the American airline United Airlines shows that Apple used to spend $150 million a year on United flights. Former Apple employees recalled that before the outbreak, their business class seats were full of Apple employees on their flights to Shanghai and Hong Kong.

Now, United no longer offers direct flights from San Francisco to Hong Kong. It flies directly to Shanghai four days a week.

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