From Bloomberg News and iHeartRadio. It's the Big Take. I'm Westkasova. Today Apple looks to expand its global reach. The story of Apple's rise to become the world's most valuable company two point four trillion dollars is also the story of its relationship with China. Apple's vast manufacturing operation there and its connections to thousands of suppliers, means it can turn out hundreds of millions of iPhones for customers around the world.
But Bloomberg's chief technology correspondent Mark German reports that Apple's singular relationship with China is changing. What you saw Apple do in China over the last ten fifteen years, you're
seeing that same book begin in India. I asked Mark to tell us how shifts in the global economy and rising tensions between Washington and Beijing have Apple looking to expand its operations outside China and try to replicate its success in other fast growing economies, and later in the show, senior reporter Debbie Wu in Taipei talks about why that might not be such an easy thing to do. There will be a pretty significant consequence if Apple is really
looking to the couple from China entirely. That's really not going to happen. Mark. When we think about manufacturing in China, Apple is certainly one company that immediately comes to mind. This incredibly complex supply chain that they built too and from China is like nothing that's ever been done before. Can you give us a sense of how important is
this supply chain to Apple's success? Apple supply chain is a monster, right, It is this sprawling operation, and the supply chain is so much more than what people think of. Right when you think of the supply chain, when you think of Apple manufacturing, you think of the idea of millions and tens of millions of iPhones, iPads other devices being popped out of a massive factory in China ship to consumers arriving on their doorsteps. But there's so much
more to the supply chain. It starts actually a lot earlier. One process is actually the development of the manufacturing equipment alongside the development of the product that's created between Apple as well as its final manufacturing partner. Those partners are companies like Foxcon, Pegatron, Quanta, Gertech, and others. These are all these partner companies that Apple essentially contracts with to make the devices in Chenna. That's exactly right. Those are
their contract manufacturers for a process known as FATP. That's final assembly, testing and packaging. But that's really the last part of the supply chain. There's a whole process before the products are actually manufactured. That's component sourcing. That's component production. That's mining of different materials, metals and minerals that go into the components and the products, things like tungsten and gold. That happens over a number of years before a product
is manufactured. And that's something that happens globally. There's parts of the iPhone, the iPad, and the watch and the mac and Apple's other products that are sourced globally from places even like the US to Europe to Japan, and Apple pulls all those components together to do that final assembly, to do that mass manufacturing in China, and the idea of the Apple supply chain was to outsource everything, and this started over twenty years ago under Tim Cook when
Steve Jobs returned to the company in the late nineteen nineties, the idea being to move away from in house Apple manufacturing and to do contract manufacturing. It lessens the costs for Apple, it lessens the risk, and you're passing over this very key part of the manufacturing process to companies that actually specialize in this type of thing. That's the Fox cons, Pegatron's quantas of the world. Right, there are
specialists in this mass manufacturing. And at the time they were building this, China was the place to do it because they had the technical ability and they were able to do it much more cheaply than you could manufacture in the US. That's right. Apple started with fox Con
in China in the early days of the iPod. Actually the first iPods are actually produced in Taiwan, and now you have facilities in China and elsewhere in Asia, and the idea being that these are the people who know how to do it at cost, at quality, and also
in quantity. And so it was very important as Apple was driving its consumer business with the iPod, It's laptops and then eventually the iPhone and the watch and the iPad, to be able to produce in these large quantities, they needed a place to do it, and China was the place to do it while hitting all those necessary factors. And of course they want to enjoy their large margins, which on some products can top fifty percent and China
was the way to help make that happen. More recently, you write though, that some cracks started to show up in this system. First when President Trump was in office and trade and political tensions between the US and China got worse, and then Trump was taking aim at Apple because they were making products in China instead of the US. And then a couple of years later when the pandemic hit and China's COVID zero policies froze up manufacturing. Can
you describe how both of those things affected Apple's business. Yeah, the Apple supply chain was really unbreakable. For the first twenty years, things really, you know, went full steam without a hitch. They were successfully able to launch several generations of the iPod, the Mac, the iPhone, the Apple Watch.
Everything was really great until around twenty eighteen, twenty nineteen, when Trump was in office in the US and his whole anti China push and the tariffs, that really started to show the cracks in the armor of the Apple supply chain. And it was twofold. On one hand, the worry from Apple and investors and consumers in China that the tariffs that Trump was attempting to put on Apple devices, including the iPhone, the Mac and the Apple Watch. These
tariffs could be several percentage points consumers. Apple shareholders were worried that this would raise the costs of Apple products and of course hurt demand. That was one part of it, but it was twofold. The other part of it was in the middle of all the issues, the economy in China took a little bit of a hit because of these concerns. That really happened at the end of twenty eighteen early twenty nineteen. And what that did is that really hurt sales in China, hurt the Chinese economy, which
in turn hurt that final supply chain. And so the combination of the economic issues in China with the tariff issues between the US and China really brought the Apple supply chain in terms of mass manufacturing, right to the forefront and brought it into question. But you know, as twenty nineteen went around, it continued, things really calmed down and normalized. Apple started to get lots of breaks with
the Trump administration on tariffs. Apple basically created a dog and pony show in Texas where it manufactured the parts of the MacPro that's their highest end desktop computer. Right. They built those parts in China and then did final assembly in packaging in test of that very low quantity machine at a plant by a company called Flex in Texas. Tim Cook came there, Trump came there, Ivanka Trump. They
held a whole press conference. Trump was very happy it had no issue because of that, showing that made in America manufacturing promise to give Apple breaks on those tariffs. So things were fine over the course of twenty nineteen because of the diplomacy between Apple CEO Tim Cook and
President Trump at the time. Then end of twenty nineteen hit, early twenty twenty hit, and we all know what happened there, the COVID pandemic that led to major shutdowns and delays and Apple supply chain in China, and really the COVID issues, the COVID zero policy in China really came to ahead with Apple at the end of twenty twenty two with the launch of the iPhone fourteen Pro, and that was supposed to be Apple's big splashy kind of reinvented iPhone exactly.
The iPhone fourteen Pro was supposed to be this major launch for Apple. You've had it improved displays, you had the dynamic Island. You had this forty eight megapixel camera on the back, you had new space black and deep
purple colors. This was a really hot phone with a ton of demand, but unfortunately for Apple, they could not fulfill that demand because new COVID waves hit China right at the height of the production and launch of the iPhone fourteen Pro, and Apple's operations team had made the unfortunate, I guess in hindsight, decision to do mass manufacturing of the iPhone fourteen Pro at a single place in China,
at fox Con one set of facilities. Those facilities went down for about a month because of the COVID zero policies, which seriously delayed iPhone fourteen production, hurt Apple sales for the holiday quarter, hurt their growth for the key Q one holiday quarter, and that all comes down to the decision to source at one plant in China. So everything was good for the first twenty years, right, but the first three to five years have been pretty rough for
the Apple supply chain. Did it make Apple executives start to rethink their dependency on manufacturing so many of its products, especially the flagship iPhone in China alone. I believe the rethink of where Apple should conduct mass manufacturing. It didn't start with these COVID zero policies. This actually predated COVID.
I think this is something that they had considered probably since the beginning of the supply chain, right or a little after the beginning, at least for a decade, but something that really came to the forefront at the time of the Trump tariffs. That's when they became really to understand that they may need to diversify a bit more. But obviously these COVID zero policies you brought that even
closer to the forefront. And what did that look like inside Apple, after all of these years of building the supply chain almost entirely lay around China, to begin to think, how do we move this beast as you describe it elsewhere? Right, Certainly, I believe the company thinks that it's supply chain is resilient and very strong. The supply chain is a strong beast. Despite everything that happened, the iPhone twelve at the height
of COVID was only delayed a few months. The MacBook Air last year was only delayed about a month and a half. The iPhone fourteen pro situation that supply situation was resolved in a matter of weeks. So it has been resilient, as Tim Cook likes to say. And it doesn't appear that we're going to have more COVID zero issues in China from here. It doesn't appear we're going to have more terriff related issues anytime soon. But this pattern certainly is a bit concerning, and it's unclear what
can happen. Anything can happen at this point between the US and China from a diplomacy standpoint, from a COVID standpoint. Right now, things are calm, but who knows what could happen in a day from now, a year now, or a decade from now. More with Mark German after the break Mark. Apple depends on China not just as a manufacturing base, but also to access their enormous consumer market
for their products. If Apple were to significantly move its production away from China, would that hurt its ability to reach Chinese consumers? Absolutely? If Apple did a wholesale move out of China, it's very possible that they would be
harmed tremendously. They bring in seventy five billion a year plus at this point, nearly twenty five percent of their annual revenue from China, and part of that ability to sell to China uniquely as a US corporation is what it injects into the economy with a million plus people in the supply chain working on Apple products, with its offices and employees in China, so it really is a partnership between Apple and China. And if Apple moves out, China may not hold up its end of the deal.
Apple's largest competitor in China is Huawei. Why has Huawei not been able to establish a bigger foothold and even overtake Apple inside China itself? The consumers in China are addicted to Apple products, the iPhone, the Apple Watch, the iPad, even the Mac now extraordinarily hot sellers in China. You know, the iPhone started off just in the US, then it expanded to Europe, it expanded to Australia, but China came
a little bit later. The really key thing for Apple in terms of the revenue you see today was twofold and these were both Tim Cook initiatives. Tim Cook struck a deal in the early twenty tens with a carrier called China Mobile that gave Apple access to about a billion new consumers because that at the time the largest carrier in China. Still to this day and most people don't know this, the vast majority of iPhones are not bought through Apple, either Apple Online, Apple over the phone,
or Apple retail. They're actually bought through the carrier stores and the carrier websites, so that relationship incredibly important, not only in China but globally. And then in twenty fourteen, that was the real big one. That was the iPhone six.
If you remember, the iPhone screen size really didn't change much between the first several generations, the original to the iPhone five S. With the iPhone five they moved from that original three and a half inch screen to a four inch screen, which is very small compared to what we have today. But the iPhone six Apple really up the ante. They came out with two new models. The base iPhone six, they moved from a four inch phone to a four point seven inch phone, which was quite
a leap. But on top of that, they released the iPhone six Plus that was with a five point five inch screen. People in China wanted the biggest they can get, the Android phones the China made phones at the time. Those had giant screens. People in China really wanted to use one device, right. They don't want to carry a smartphone, a tablet, in a computer. They wanted one device that could do it all. And to do it all, you need the biggest screen you can get. So the iPhone
six plus extraordinarily hot seller in China. So the bigger and bigger they've gone on the screen sizes, the better and better they've done, not only in China but elsewhere. So they've really been doing things to reach the Chinese market. They've also done new software features, things that the people
in China are wanting to install on their phones. But there's also some things that Apple has done that have really been done to appease China, things that are not necessarily so pleasant in order to keep this relationship flowing. I'll give you an example. Some of the iTunes features, the Apple Books features, some of the app Store features those are not available in China. Other features have been
implemented at the behest of the Chinese government. Last year, Apple changed its air drop feature to help the Chinese government avoid people spreading protest information against the Chinese government. Using this air drop feature, which allows you to send files at short distance between devices. Apple eventually said that feature was a global feature, and they made it global, but it's no secret that they released it in China first, and it was designed for China before they expanded it.
So now we're seeing India rise as a consumer market. India's population now rivals or in some measures, actually exceeds Chinese population. Now, is there a chance that Apple starts doing what you're describing they're doing now in China in India, trying to attract that enormous consumer base by moving production there to create the same kind of symbiotic relationship between its products and the government what you saw Apple do
in China over the last ten fifteen years. You're seeing that same playbook begin in India, and with a population of well over a billion at this point and a growing economy there, you're seeing Apple do this all over again in India. And you saw what that did for Apple's revenue growth when they made these moves in China. Their hope is it's going to happen all over again in India, so they're focusing tremendously there. They're building up
production facilities for the iPhone and other products there. They've done small scale manufacturing of the iPhone there, but it's getting hotter and hotter. They're starting to produce their highest end iPhones earlier in India. They're going to produce more iPhones in India over time. They're working on a few new retail stores. They're planning to open their first one in the end of twenty twenty three, with more to follow. I would say probably they're going to open at least
two more over the next year or two. Over the next decade, you might see fifteen twenty stores or more. They've recently created their own sales region internally just for India. India used to be grouped with other emerging markets in terms of its organizational structure at Apple grouped with Africa, grouped with Eastern Europe, grouped at the Mediterranean, grouped at the Middle East. Those have broken off into their own region as one group, and now India is a stand
alone region. Reporting to Mike Fenger, who under CEO Tim Cook is Apple's head of sales, India is clearly prominent and clearly Apple's imminent future, both on a sales standpoint and on a product manufacturing standpoint. So we've seen coverage lately about how Apple maybe leaving China for India or other countries. But it seems like what you're describing is that they're not going to leave China. They're simply going to grow even bigger to include India without having to
significantly scale back in China. Is that right? I don't believe that Apple has any imminent plans to significantly scale back in China. Maybe they scale back twenty percent, twenty five percent, maybe even fifty percent, and they build up more infrastructure in India, But I believe the idea is to build in redundancy and expansion rather than make a wholesale removal of its operations from China. There is too much at risk for Apple to do something like that.
When you look ahead, what do you see for Apple's manufacturing. Do you start to see it manufacturing in many, many more countries or how do they manage the supply chain when it becomes even more complicated across nations and regions. So right now, most every Apple product you buy, it's going to say made in China, whether that's in the software settings or on the back of the phone, or the top or bottom of the phone, it's going to be made in China. But I think in five ten
years from now, it'll be a crapshoot. Maybe someone's phone says made in China. Maybe someone says made in India. Maybe one in Vietnam, one in Thailand, one in Malaysia. Maybe someone's max has made in Ireland or made in Texas. The final assembly is going to be much broader, with more redundancy, but still the majority of the products made in China, particularly the iPhone. I believe Mark German, thanks
for coming on the show. Thanks so much. When we come back, a closer look at Apple's expansion into India. As Mark German told us, Apple is looking to further expand its massive manufacturing empire, but that might not be so easy to do. A Bloomberg Intelligence analysis concludes it would take eight years to move just ten percent of Apple's production out of China. I asked my colleague Debbie Wu in Taipei, she covers tech and supply chains, why it would take so long for Apple to begin to
deco full a bit from China. I'm not sure whether Apple is planning to the couple from China per site, because China after or remans a major market for Apple. And also Apple is still making most of its S gadgets inside China, so there will be a pretty significant consequence. If Apple is really looking to the couple from China entirely, that's really not going to happen, at least not overnight.
I always like to remind people that Fox Come first went into China in nineteen eighty eight, so let's some more than thirty years ago. In Central China employees about two hundred thousand people, even not India low season. Think about which other country cannot provide Apple and Fox Cong such a sheer amount of workers during a peak season. I don't think you can name a lot of countries. India has become a natural choice for Apple to a versify some of its production too. Apple certainly seems to
think so, Debbie. Earlier this month, you reported that Foxcan, one of Apple's manufacturing partners, plans to invest about seven hundred million dollars on a new plant in India. Can India move quickly enough to ramp up high quality production that Apple requires. This is not just like depending on india stub population. We are talking about a comprehensive ecosystem as well, So it's not just like Okay, foxcon has moved to India and then India will be able to
ramp up iPhone production. It does need a entire ecosystem, So in China's case, it's not just foxcun but it's a comprehensive ecosystem made up of hundreds and thousands of
component suppliers. So because they are all inside the Chinese border, these component suppliers have the adequate infrastructure including a highways, and then logistics including trucks, and then the meticulous logistics plannings to help them get their components to a like need to BA. This is all very important for Apple because Apple has to execute a very very brutal cycle or for launching a new generations of iPhone on a
early basis. They simply cannot afford to miss cycle. Three of Apple's major iPhones suppliers are now in India rounding assembly operations, but most of the component suppliers still haven't quite set up manufacturing operations in India, so that will lead to a more kindly and more costly operations for
Apple in the country. If India wants to become a proper ecosystem in itself, then it will have to first lure more Apple components suppliers to a country to be able to build up a proper infrastructure within the country to help the ecosystem to be able to run and coordinate with each other smoothly like they do in China.
Is some of this about just capturing India's growing consumer market, which is now rivaling China's, That's for sure, because China's economic growth has been slowing down, and then the target of five percent of growth seems to be only fairly satisfactory for a lot of investors and economists. So naturally it's not just Apple, but Apple and also a lot
of companies in the West and also in Asia. We'll be looking at, you know, what's the next growth market for us, and then where can we try to capture the most profits and growth next? And India, with its economy yet to really take off and with the population still have a quite a long way to go in terms of spending power. I think the majority of our complaints is looking at this as a great opportunity to
go into the market. Because the Moldies government is currently offering various incentives for manufacturers to make gadgets and chips in his country. So I think mold is also fully aware that this is a great opportunity to attract these foreign investments at the time that the US and China are continuing to see a very strength relationship. When you look ahead, I don't know, a decade from now, do you think a lot of Apple's manufacturing will be outside
of China in places like India and Vietnam. It really depends a lot on what's going to happen in the US China relationship, basically the ties between the two largest economies in the world. So I think a lot of
complaints are feeling. If the somehow the strength relationship gets improved, and maybe it's back to era of engagement, then I think a lot of complaints still probably would prefer to move for production back to China, because that way it's centralized, it's more centralized, it's more efficient, and then the costs are lower, and then that means that you can offer
a better price for your consumers as well. So in a way, if you continue to think about costs and profits and what Wall Street investors would prefer, let's actually what the most company would still like to say. But if this tension between Washington and Beijing persists or even escalates, I think it would drive more complaints to rethink their manufacturing astrology, and then whether it is necessary to move
more production outside of China to mitigate geopolitical risks. Thanks for speaking with me today, Thank you for having me, Thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from my Heart Radio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is
Vicky Bergolina. Our senior producer is Katherine Fink. Our producer is Federica Romanello. Our associate producer is Zeneb Sidiki. Philde Garcia is our engineer. Our original music was composed by Leo Sidrin. I'm Westkasova. We'll be back tomorrow with another Big Take.