Apple Devises Complex Strategy to Reduce China Dependence

He gets into how Apple is specifically looking beyond China to remake its supply chains, which have been the brainchild of now CEO Tim Cook. This story in the new issue of Bloomberg Business Week on newstands later this week tomorrow, in fact, already online at Bloomberg dot com slash business weekend. Of course, I'm the Bloomberg terminal, So let's get more

on what Apple and Tim Cook are up to. Delighted to have with us Bloomberg BusinessWeek Technology editor Joshua Brustein and the editor of Bloomberg Business Week, Joel Weber, both here in our Bloomberg Interactive Brokers studio. I feel like when Apple talks or when Apple moves, we all pay attention. All right, No, doubt please. They are. They are the biggest, most important tech company in the world, I think, and so much of that has been built by Tim Cook.

And when Tim Cook builds something like that, it is done at scale, and it is done in China. But what we have witnessed over the past couple of years, and elements of this we've reported about before, is that Apple has sort of started to have a wondering eye and looked outside the country. And I think a lot of that has been just informed by the US China tensions. And what we've reported before is that India is of interest.

But what we now know, based on Mark Grumman's reporting in this story that Josh edited for the magazine, is that it's not just India and that it perhaps it is much bigger than Apple has previously indicated. Just how big, Josh, Yeah, I think at the beginning of the pandemic, there began to be some talk about, well, maybe Apple's reliance on China could be a problem. What are the disruption is going to be like? At the time, CEO Tim Cook said any changes are going to be just adjusting a

few knobs. And what we see now is those are maybe really big knobs, because there's to be fair, they might might still be knobs, but they are perfectly designed knobs though, just beautiful that Apple is looking increasingly to do iPhone production in India. This is not instead of China, it's an addition to But the most aggressive timelines would have about a quarter of all iPhones made there by

twenty twenty five. And then you see also big knob, and it's showing that it's not like all the eggs in one basket, right in many ways exactly, I think the company just is seeing kind of the obvious risks here of having so much of your production focused on one geographic area, especially one whose relationship with US is so tenuous. Can we take a step back, Can just talk about Tim Cook? I mean he was the is the man of supply chains right ahead of before becoming

CEO operations, mister ups. Yeah, absolutely, Yeah. Tim Cook is largely given credit for being the architect of Apple's China strategy, which is in large part, you know, part of the part of the reason for success. The fact that the iPhones are made so well and so smoothly is because of what Tim Cook has built in China. And now we see um you know, him undertaking the very large

task of replicating that elsewhere. So one other company that's been absolutely instrumental to Apple's growth is Foxcon, which quietly actually does a lot of the manufacturing and assembling. How does Foxcon fit into this game that Apple seems to be playing. Yeah, absolutely, that's a great point. A lot of what's happening when we talk about Apple making phones is actually Apple working with Foxcon, a couple of other large suppliers, and then literally thousands of small suppliers to

make to make all these plans. And Foxcon has been working in India on iPhones for about five years, maybe a little bit longer, and as well as some of its other large suppliers. But you see it really doubling down, opening new facilities and trying to ramp up the ones that are there. Is there a concern about retaliation from China? I mean, I know the answer is yes, But to what extent is that concern plane into Apple and Tim

Cook's decision making. Obviously that's a concern, and the story opens with Tim Cook actually making his first public trip to China since recently. This was yeah, just I think maybe about a week ago and surprising given what we've been talking about, you know, Ireland, India, other locations. Yeah, and he went there and sort of, you know, it felt very much like a diplomatic trip, smoothing things over, telling China how important it was, meeting with high level

government officials. And I think Apple's plans, according to Mark's reporting, is to do this in a gradually enough way that will reassure China that, you know, Apple is still an important partner. You're still number one, and that number one still dating. We're okay, We're okay. You know, I think

it is I'm tempted to joke there. But when you think about the geopolitical tensions here and the significance of Taiwan, which we have not talked about here, which is actually where much of China's chips come from, much of Apple's chips come from. Um, that's actually one of the things that really stuck out to me here because there's little minuscule things that I want to talk about, like the screws that go into phones that they have to actually

just make sure that they have supplies for. But like you can probably find screws where where, we find screws wherever, but you can only really find chips in Taiwan. Right, And that's another ye actually not a huge part of this story, but I think a huge story to watch going forward. There's a little bit of reporting that Mark as that Apple is also exploring some alternatives to um, the chips that TSMC makes for in Taiwan. The problem

is there, really, as Joe says, aren't any alternatives. This is such a that's such an immense undertaking that Taiwan is basically where you have to go for that. Well, if you think about it, if that supply chain is disrupted, you have no Apple products, right and in terms of the more than Apple but no fire Yeah, exactly exactly. But the quality like not all chips are the same

and TSMC, right, that's another part of it. I mean, yes, you can maybe get chips elsewhere, but they're not going to ASSERTI meet the standards of what Apple needs for its products. Yeah, that's exactly right. That that is a major choke point for Apple and frankly, um, you know the world accur right, A Taiwan is something definitely to

keep an eye on. Okay, So Apple on occasion has done this before, and we talked about India and there's other countries we should also talk about, because in addition to iPhones, there's this impacts other products in Apple's portfolio. But I also just want to drive attention to the fact that Apple has done this before, and there's been some efforts to even bring some of the productions back

to the US, and it hasn't always gone well. So how is Apple attempting from what we know, because they also say that they're just playing with little knobs, But based on what we know, how are they attempting to make sure that the quality control of issues that they've sort of encountered before don't happen again. Yeah, I do think it's striking to see the difference between past manufacturing adventures, if you will, from Apple and what's going on in

India in particular now. It has tried to set up some mac production in Brazil in the United States in the past, and those felt like tokens, token efforts. What you see in India is let's get all the suppliers to do the glass, to do the screws, as you say, to have like our BIGG assembly, our BIGG assembly firms, They're doing everything and really start from the ground up, like like Tim cooked it in China and it might

take two decades to get there, but they were gone. Okay, So let's let's talk about some of these other countries that come up here, because India is one that I mentioned, But who who else and what else is getting get made here? It is part of this effort to to expand potentially be outside of China. Right Exactly. We've been talking about the iPhone a lot because that's most of what Apple makes. But it does make, you know, it

makes product, it makes other products. It makes the Mac, which is being handled in both Vietnam and Malaysia in a little bit in Ireland. Um. And then when you get to other products, um, you'll see you know, I mean it has it has AirPods, it has iPads. Those things are also going to be spread about in different ways. But Southeast Asia for the Mac and India for the phones is kind of the basic way to think about Ireland. Ireland was a surprise there for me. Wasn't expecting them

to double down there. Yeah, you mean in terms of what because there's a little technic goes though, I mean clearly in manufacturing. My question on a place like Ireland is the cost of the labor and how do you not end up passing that cost down to the consumer, Like I have a double question here of how it's

going to impact my iPhone bill. Bad questions. Yeah, but yes, consumer, I think they I think they pick the things that they manufacture there, and it's probably more of an assembly role than a manufacturing one, if I'm if I understand that. My understanding is in other places, like for instance, in the United States, where some macs are assembled, it is the very final assembly. It's it's smaller runs, and obviously labor.

You can just look at where they're doing manufacturing and production, and labor costs clearly factor and they're they're targeting lower labor costs. So I talked about the screws for a second. But Apple does have teams that they are embedding there.

And I found this to be fascinating too, because there's all these like almost like little pieces that they have to account for as things get made, that they have to make sure that if they were to change supply chains, are these little invisible pieces accounted for too, right, Like, so talk to us about how focused on the minuscule stuff Apple has become. Yeah, these are the these are

the Tiger teams that Mark mentions in the story. And this is another interesting point inside the company, inside Tiger teams within Apple. Yeah, and this is another interesting point about whether Apple makes these phones or someone else is

making them. You know, Tiger teams are oftentimes going into supplier companies, but these are Apple employees who are They're trying to make sure suppliers are sourcing things in the right way, the most efficient way, getting the right parts, resilient against any disruptions, and really kind of helping them, you know, turn the knobs if you will, Maybe you turn the knob a little, maybe turn it a lot knobs. We're going to be talking about. NASA really want like

a big Apple knob. That would be great. I mean, thirty seconds left here, I mean how I just feel like this is just a moment in time where I feel like it's the beginning. I'll give you a big change. I'll give you Mark's big takeaway, I think, which is, look like Tim Cook built this once. Yeah, if anybody can do it again, it's going to be him, right, like the right person to figure it out. Right. But

I just optimistic view. I just look at that delicate balance because I remember when he was in China because we've been starting to hear stories about them changing their supply chain, and I thought, wow, that was a big, powerful visual of Okay, everything's okay. We're still in China. But it's such a delicate balance. Yeah, there you go. I'll give you a perfect little boat. I know, and I screwed it out. That's what I do. Joe Webber, editor of Bloomberg. This is why you're the editor Bloomberg

Business Week. Here and I'm in here this scene Joshua Brustein, Technology Editor, Bloomberg Business Week. It is in the new issue of Bloomberg Business Week.