Foxconn Invests Another $500M in India, iPhone Production in India, Twitter Looking To Offset App Store Revenue Share (Daily Update)

We begin with Neil’s thoughts on Foxconn announcing another $500 million investment in India to diversify its supply chain. The discussion then turns to iPhone sales and production in India and rumors of Apple looking to greatly expand production in the country. The update concludes with an examination of Twitter relaunching Twitter Blue with different pricing to reflect App Store revenue share percentages.

Hello everyone. Happy Monday.

With two weeks left of 2022 for many of us, we are continuing to run forward.

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Let’s jump into today’s update.

Foxconn Invests Another $500M in India

In an article published on December 9th, here’s South China Morning Post:

“Foxconn Technology Group, Apple’s biggest contractor, has invested US$500 million in its Indian subsidiary, as the Taiwanese manufacturing giant moves ahead to diversify its supply chain after China’s stringent pandemic controls disrupted production at its top iPhone plant in the central city of Zhengzhou.

The cash injection into Foxconn Hon Hai Technology India Mega Development Private Limited, made through Foxconn’s Singapore unit Foxconn Singapore Pte Ltd, involved the purchase of over 4 billion shares, according to a filing on Thursday to the Taiwan Stock Exchange…

Foxconn signed a US$300 million agreement with a Vietnamese developer in August to expand a new local plant, and plans to quadruple the workforce at its iPhone-making Indian plant over two years, according to reports by Reuters earlier this year…

Despite Foxconn’s move to diversify its manufacturing footprint, chairman Liu Young-way said in last month’s earnings call that the company planned to spend the largest portion of its increased capital spending next year in mainland China.”

Given the long list of issues at Foxconn’s Zhengzhou facilities, this article is getting a larger-than-usual reaction. Some are looking at the timing of Foxconn’s $500M Indian investment as the company sending a clear signal to Chinese officials.

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Apple News+ Circulation Data, Goertek Runs Into AirPods Pro Trouble, The Case for Foxconn (Daily Update)

We begin today’s update with new data/estimates regarding circulation data for magazines that are part of Apple News+. The discussion then turns to Apple’s contract manufacturers. There was one follow-up from yesterday’s update worth pursuing regarding Foxconn. We look at Goertek running into trouble assembling AirPods Pro and how the news points to a broader truth found in doing business with Foxconn.

Hello everyone. It looks like we have some Project Titan news to discuss. Given the timing, we will do that tomorrow.

In today’s update, there was one follow-up worth pursuing regarding Foxconn. We will begin though with Apple News+.

Apple News+ Circulation Data

It’s been a while since we last talked about Apple News. The service launched in September 2015 with Apple News+ launching in March 2019. Audio was introduced in mid-2020.

Back in April 2020, Apple disclosed that Apple News had 125M monthly active users. The figure likely reflected a usage boost due to the pandemic. Clicking on an Apple News story in Today View, which continues to be a value-add proposition, brings you to the Apple News app. This is likely where many of the 125M Apple News users originate. With no subsequent updates to that user figure, we can assume it hasn’t change by much. It is a very high number given that Apple News availability is still limited to a handful of countries.

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The Foxconn Protests in China, Impact on Apple, COVID Protests Worsen in China (Daily Update)

Hello everyone. Today’s update will examine the Foxconn/COVID protests in China. Let’s jump right in.

The Foxconn Protests in China

In an article published on November 24th, here’s CBS News:

“Foxconn, the electronics manufacturing company that assembles Apple's iPhones, apologized Thursday for the pay dispute that triggered massive employee protests, and violent police pushback, at a factory in central China where anti-virus controls slowed production.

Mounting unrest at the Zhengzhou factory has persisted for at least a month, since thousands of employees staged a walkout in October over what they said were unsafe working conditions linked to the spread of COVID-19. All of this comes as China grapples with a spike in virus infections, seen especially in highly populated cities.

Foxconn hired a slate of new employees following the exodus. Accusations that the company unlawfully altered its policies for incoming workers, who say they were hired with the promise of higher pay than they are actually receiving, led to protests at the factory.

Videos shared on social media earlier this week appeared to show one particularly large demonstration involving thousands of people in Zhengzhou, wearing masks and facing rows of police officers wearing protective suits and holding riot shields. Police kicked and hit a protester with clubs after the person grabbed hold of a metal pole that was being used to strike him. Witnesses also said that employees at the iPhone factory were beaten and detained amid the protests.”

Zhengzhou is nicknamed “iPhone City” as it’s the largest hub of iPhone production in the world. Estimates peg Foxconn’s facilities in the region at being responsible for 50% of iPhone production.

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Above Avalon Podcast Episode 182: Apple’s Underestimated Manufacturing Apparatus

Apple is quietly and gradually showing us that the phase “Designed by Apple in California Assembled in China” will evolve. In episode 182, Neil goes over the changes taking place within Apple’s supply chain and manufacturing apparatus. The discussion includes a breakdown of where Apple products are manufactured and the relationship between Apple and its contract manufacturers.

To listen to episode 182, go here. 

The complete Above Avalon podcast episode archive is available here. 

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Designed by Apple in California, Not Assembled in China

One phrase that has become a fixture on Apple device boxes and some Apple products is “Designed by Apple in California Assembled in China.” Those eight words may not mean much to the average Apple consumer, but they sufficiently sum up how a company now worth more than two trillion dollars became one of the largest sellers of consumer gadgets. A gradual change to Apple’s supply chain and product manufacturing apparatus is now underway. One byproduct of this change is an increasing number of Apple product boxes that no longer contain “Designed by Apple in California Assembled in China.” The change has implications for how Apple will approach product manufacturing in the 2020s.

Designed by Apple

Most analysts and pundits have landed on Apple’s custom silicon efforts as the defining source of the company’s success – the single-most important factor in explaining how Apple has been able to stand out from its peers. While Apple’s silicon prowess is undoubtedly a key differentiator for the company, the decade-long bet isn’t the fundamental reason why the company is where it is today. Instead, one has to look at the processes and culture that made Apple’s silicon efforts possible in the first place. 

Ultimately, Apple’s design-led culture is the single-most responsible factor behind the company’s ability to expand its installed base to more than a billion people. The relationships that Apple has formed with its customers aren’t just any connections but rather some of the strongest and most loyal connections in the corporate world. Apple placed a big bet on design (how we use products) and was proven right. Believing that technology is too powerful of a force to enjoy without acquired perception and natural intelligence made Apple an outlier. Other companies are now trying to emulate Apple’s design-led thinking and culture with varying degrees of success. 

In California

While those residing in the U.S. may not make much out of the “in California” component of “Designed by Apple in California,” Apple’s roots and heritage are intertwined with Silicon Valley. Apple can be described as a headquarters-centered company. Despite announcing major expansion plans in Austin, and new presences / expansion in in a handful of U.S. cities including Seattle (poach Amazon employees), San Diego (poach Qualcomm employees), Culver City (poach Hollywood talent), Pittsburgh (autonomous systems), New York (media and publishing), Boston (robotics), Portland (hardware-related efforts), and Boulder (possibly related to health-related efforts), everything comes back to Apple Park in Cupertino, California. Apple Park remains the sun with all of these satellite offices and campuses revolving around it.

Taking a step back from Apple in particular, the era when it was either Silicon Valley or bust ended years ago. However, that doesn’t mean Silicon Valley has been displaced as one of the most concentrated sources of innovation and new age thinking in the world. Recent attempts by some to paint other parts of the U.S. such as Miami and Austin as new Silicon Valleys may make for great tweet threads and blog posts, but for every person “fleeing” Silicon Valley, there are multiple people ready to be a replacement. 

Assembled in China 

The controversial part of “Designed by Apple in California Assembled in China” is “Assembled in China.” For some products, Apple has relied on “Made in China.” In recent years, Apple’s extensive ties to China regarding its supply chain and manufacturing apparatus have been labeled as major liabilities. Headlines and narratives are universally slanted against Apple’s approach to China, home to approximately 15% to 20% of Apple’s users. Many pundits want Apple to simply close up shop in China and abandon its users in the country.  

As relations between the world’s two economic powerhouses deteriorate, Apple has been described as being stuck in the middle. Of course, such a simplistic description lacks nuance. When it comes to China, Apple’s position is not nearly as perilous as western media wants people to think. Apple has been able to maintain its premium brand status in China and the brand remains heavily influential in China’s tech scene. It’s not outlandish to say that most non-iPhone smartphones sold in China are heavily “inspired” by the iPhone. The same can be said about wearables being “inspired” by Apple Watch and AirPods. 

In addition to a strong brand, Apple has a few key things going for it when it comes to its power standing and positioning in China. Being ultimately the driver behind the largest private employer in China means something. Not only are Apple products destined for sale in China made in China, but the country has been responsible for manufacturing Apple products sent to other countries. Being home to Apple’s supply chain and manufacturing apparatus gives China power and standing in its economic battle with the U.S. and increasingly other countries, including India. 

Not Assembled in China 

In December 2020, I ordered two HomePod mini speakers shortly after Apple unveiled the lower-cost speaker. One of my initial observations about the speakers materialized before opening the boxes. The back of the HomePod mini box did not contain the usual “Designed by Apple in California Assembled in China” phrase. Instead, the following was printed on the box:

“Designed by Apple in California Made in Vietnam.”

Rumors had pegged the new HomePod mini as being assembled in Vietnam. Even then, seeing Vietnam on the box was an eye-opener. Taking a step back from the HomePod mini, we see Apple embark on a broader move away from China for product manufacturing. The following products are currently, or will be, assembled outside of China.

  • Vietnam: AirPods Pro, HomePod mini, AirPods (rumored), iPad (rumored), Mac (rumored)

  • India: iPhone, iPad (rumored)

  • Malaysia: Mac mini

  • U.S.: Mac Pro 

(While the Mac Pro has been assembled in the U.S. for years, the device sells in such low numbers that it’s tough to say Apple has embraced U.S. manufacturing.)

A handful of countries in Southeast Asia are now in a position to manufacture Apple products. Some of this is due to governments increasingly accommodating foreign investment. Another factor is Apple’s long-time and vital business partner, Foxconn, showing a renewed effort to diversify its own business and footprint outside of China.

At the heart of this manufacturing transformation, one simple principle is guiding Apple: retaining power. By diversifying product assembly outside of China, Apple ends up pitting both governments and assemblers against each other. Apple stands to be one of the largest beneficiaries from increased economic rivalry between China, India, and Southeast Asia countries. Apple continues to take advantage of India’s more friendly and accommodating environment to bring a growing portion of iPhone production to the country. 

As for some of the finer strategy details found with Apple’s move, instead of announcing a big change like “we are moving all iPhone production out of China,” which western media has been demanding for years, Apple is taking the more practical and intelligent approach. The company remains careful not to disrupt its existing assembly apparatus. The vast majority of product assembly remains in China. Apple has looked outside of China to handle assembly for newer products that sell in much lower volumes relative to the iPhone. Such decisions involve a comprehensive examination of not just product assemblers (Foxconn, Pegatron, Luxshare, Wistron) but also the ability of key suppliers to work with the diversification efforts. Apple benefits from having resources and assets close to assemblers. 

Looking down the road, it is reasonable to expect a growing percentage of Apple products will be assembled outside of China. It is even likely that Apple will bring manufacturing back to the U.S. and we would be talking something much larger than the Mac Pro. Instead of iPhones and iPads being made in Alabama, Georgia, or Tennessee, it is more likely that Apple Cars will one day be produced in sprawling plants that are owned by third parties but contain Apple-owned machinery and equipment. 

Evolution

Apple is quietly and gradually showing us that the phase “Designed by Apple in California Assembled in China” will evolve. The company remains heavily invested in China, and that likely won’t change in the near term. However, by gradually diversifying product assembly into other countries, Apple ends up showing the world that its supply chain contains much more optionality than critics imagined. The battle between the world’s top economic powers for Apple’s business will be a key theme to watch in the 2020s.  

Listen to the corresponding Above Avalon podcast episode for this article here.

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For additional discussion on this topic, check out the Above Avalon daily update from April 19th.