This fall, Apple will make some of its flagship iPhones outside of China for the first time, a small but significant change for a company that has built one of the world’s most sophisticated supply chains with the help of Chinese authorities. But the development of the iPhone 14, which is expected to be revealed on Wednesday, shows the complexity of Apple’s disengagement from China.
More than ever, Apple’s Chinese employees and suppliers have contributed complex work and advanced components to the 15th year of its landmark device, including aspects of manufacturing design, speakers and batteries, according to four people familiar with the new operations and analysts. As a result, the iPhone turned from a product designed in California and made in China to one that was created in both countries.
The critical work provided by China reflects the country’s progress over the past decade and a new level of involvement of Chinese engineers in the development of iPhones. After the state lured companies into its factories with legions of low-priced workers and unrivaled production capacity, its engineers and suppliers rose up the supply chain to demand a greater portion of the money American companies spend creating high-tech tools.
China’s growing responsibilities over the iPhone could challenge Apple’s efforts to reduce its dependence on the country, a goal that has become more urgent amid rising geopolitical tensions over Taiwan and concerns in Washington about China’s rise as a tech competitor.
Chinese companies with operations in India will continue to play a major role in Apple’s plan to make some iPhones in the country. In Chennai, India, Taiwanese supplier Foxconn, which already makes iPhones in factories across China, will lead Indian workers to assemble the device with support from nearby Chinese suppliers including Lingyi iTech, which has subsidiaries supplying chargers and other components for iPhones, according to For two people familiar with the plans. These people said that China’s BYD is also cutting display glass.
“They want to diversify, but this is a tough path,” said Jane Munster, managing partner at Loup Ventures, a technology research firm. “They depend on China a lot.”
Apple declined to comment. Foxconn, BYD and Lingyi iTech did not respond to requests for comment.
Covid-related disruptions have exacerbated Apple’s predicament. When China closed its borders in 2020, Apple was forced to overhaul its operations and abandon its practice of flying hordes of California-based engineers to China to design the assembly process for its flagship iPhones.
Instead of subjecting employees to a lengthy quarantine, Apple has begun enabling and hiring more Chinese engineers in Shenzhen and Shanghai to lead the critical design elements of its best-selling product, according to four people familiar with the operations.
The company’s manufacturing and product design teams began making late-night video calls to their counterparts in Asia. Those people said that after resuming travel, Apple tried to encourage its employees to return to China by offering a salary of $1,000 a day during two weeks of quarantine and four weeks of work. Although the return could be as high as $50,000, many engineers were reluctant to go due to uncertainty about how long they would have to quarantine.
Those people said that in the absence of travel, the company encouraged employees in Asia to lead colleagues-led meetings in California. The staff also took charge of selecting some Asian suppliers for future iPhone parts.
These people said the company is increasingly exploiting China to provide these jobs to higher-paid workers. This year, Apple posted 50 percent more jobs in China than it did for the whole of 2020, according to GlobalData, which tracks employment trends across technology. These people said that many of these new hires are Chinese citizens who were educated in the West.
The change in the way Apple operates has coincided with an increase in the number of Chinese suppliers it uses. Just over a decade ago, China contributed quite a bit of value to iPhone production. It primarily supplied the low-wage workers who assembled the machine with components shipped from the United States, Japan, and South Korea. The business accounts for about $6 — or 3.6 percent — of an iPhone’s value, according to Study by Yuqing XingProfessor of Economics at the Higher National Institute for Political Studies in Tokyo.
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Gradually, China sponsored local suppliers who began to displace Apple suppliers from all over the world. Chinese companies began making loudspeakers, cutting glass, providing batteries, and manufacturing camera modules. According to Mr. Xing, its suppliers now account for more than 25 percent of the iPhone’s value.
Dan Wang, an analyst at Gavekal Dragonomics, an independent economic research firm, explains that the gains illustrate how China has expanded its mastery of the smartphone supply chain. “This trend is not slowing,” he said.
Through most of the pandemic, China has rewarded Apple’s reliance on the country for manufacturing. Its steady production — even as other countries shut down for periods in 2020 and 2021 — helped Apple increase its smartphone market share and sell the most iPhones ever, according to analysts, a remarkable feat for a decades-old electronic device that has gone from delivering revolutionary innovations to incremental improvements.
This year, analysts expect Apple to release four iPhones with smaller notches for its Face ID feature than previous models. It is unveiling the phones a week earlier than usual, which could boost revenue in the current quarter by adding a week of sales. The price of the iPhone 14 Pro models is also expected to increase by $100 to more than $1,600 to offset the higher costs of some components.
Apple expects the iPhone 14 to build on the success of the past years. While other smartphone makers are cutting production as the global economy collapses, Apple has called on its suppliers to produce more phones than they did a year ago, according to Susquehanna International Group, a financial firm.
The rising manufacturing demand is a testament to the resilience of Apple’s wealthy customers, whose deep pockets allow them to buy higher-priced smartphones despite rising inflation and economic downturn.
“There is a huge wealth gap in consumer spending in the smartphone industry,” said Wayne Lamm, technical analyst at CCS Insight. “Apple is safe for competition.”
When news media employees gather Wednesday at the company’s headquarters in Cupertino, California, for a product debut, Apple will highlight the phone’s capabilities — not how it’s made. The only signs of changes in this process will be visible on flights arriving and departing from nearby San Francisco International Airport.
Apple once spent $150 million a year on flights with United Airlines, According to one of the United promotional banners. Former employees remember that before the pandemic, they were taking flights to Shanghai and Hong Kong where business class seats were filled with people who work for Apple.
Now, United no longer offers non-stop flights from San Francisco to Hong Kong. Fly direct to Shanghai four days a week.
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