The iPhone shortage on Apple’s holiday is a symptom of a much larger problem

Apple is somewhat similar to Superman. Wait, wait, hear me out. Sure, it gets a good chunk of its power from the yellow sun (thanks, solar energy), and maybe even its rumored smart glasses can’t disguise it as Clark Kent, but the company certainly has no shortage of superpowers: selling hundreds of millions of products worth an estimated Dollars, prominent in multiple technology markets, capable of jumping tall buildings in a single bound, etc.

But just as Superman possesses kryptonite, Apple also has a major weakness that could bring the company to its knees: its over-reliance on China. Yes, the region provides a significant portion of the company’s sales, but even more than that, it is the global manufacturing and assembly center for Apple. And when that is threatened—due to political issues, supply chain issues, or COVID-related conundrums—it could seriously dent the company’s bottom line.

You need look no further than the recent statement from Cupertino, stating that the most expensive (and likely most profitable) iPhone models It was a huge success in sales Due to an epidemic related factory closure. Recently, though, Apple has begun moving to correct this dependence on China, looking to bring manufacturing to a number of other places. It’s a good long-term decision, but it won’t happen quickly, and there will be plenty of challenges along the way.

Chopping away at the problem

Processors are an important piece of Apple’s manufacturing supply chain. By switching from Intel to its own custom silicon in the past few years, Apple has been able to exercise more control over its hardware, resulting in significant performance improvements and the ability to unlock new features. But this blanket control comes with risks, too. The A and M series chips that form the basis of Apple devices are currently produced exclusively by TSMC, a semiconductor company based in Taiwan.

Apple’s relationship with China hovers around this business, both in terms of the long and complex political relationship between the country and Taiwan, which Apple has had to deal with (and hasn’t always worked out so well – see Removed the Taiwanese flag emoji in China) as well as increasing geopolitical tensions in the region. Apple is not alone in this: at a recent company meeting, Reported by BloombergCEO Tim Cook said that 60 percent of the world’s processors come from Taiwan.

At the same meeting, Cook said Apple would source some of its processors from a new factory TSMC is building in Arizona, though that facility is still years away from coming online and probably won’t immediately produce chips for the company’s latest chips. hardware. On top of that, that factory’s capacity is said to be around 20,000 chips per month, which is a drop on the batch compared to the hundreds of millions of devices Apple ships in the quarter.

India Company

Apple’s reliance on manufacturing in China has also had an impact on the company’s ability to access other markets, most importantly India. As the second most populous country in the world, it presents a huge potential market for Apple to expand its customer base. But those opportunities were limited by restrictions on selling products not made in India, which is one reason Apple started manufacturing older iPhone models there: those lower-cost devices were better positioned for a price-conscious market.

Henry Burrell/Foundry

This year, the company also took off Ramping up production of flagship iPhone models in India as well. While this is good for Apple’s sales within India, it is also promising in the overall picture, as the company plans to export some of these units as well.

While it is estimated that only about 5 percent of these phones will be manufactured in India, it is not a small fraction that could grow in the future, taking pressure off manufacturing in China. But, like diversifying chip production outside of Taiwan, it’s a process that will take some time to have an impact.

around the world

Apple is also investigating manufacturing and assembly elsewhere, too. Like Vietnam and Brazil, but so far, these remain small parts of their total capacity.

This is where Apple’s weakness comes in. In the range in which the company manufactures products, it is simply difficult to find places that can reach the required numbers. China has invested, for better or for worse, in the supply chain and companies that can produce at these volumes, which ends up with Apple tying up the country. This continues to make Apple vulnerable, by forcing it to take questionable steps – like changing the latest feature to Limiting the availability of Apple’s AirDrop featurewhich was reportedly used to organize protests in China.

To go back to our Man of Steel comparison, it’s like being under the influence of exposure to low-grade kryptonite constantly. Not that Apple is in danger of a fatal blow, insofar as everything the company is trying to do is just a little bit trickier: it’s been reduced from superhero status to mere mortals like us. This relationship with China is slowly shrinking at Apple, and hopefully, these diversification moves will get to the point where they can jam that kryptonite into a major fund and regain steam.