Apple's biggest iPhone manufacturer has a backup plan in case the trade war between the US and China continues to escalate

iPhone XSEdgar Su/Reuters

  • Apple's biggest iPhone assembly partner, Hon Hai Precision Co., is prepared to move iPhone production outside of China if necessary, according to Bloomberg and The Wall Street Journal.
  • The comments come amidst ongoing trade tensions between the United States and China.
  • Previous reports have suggested the iPhone manufacturer is scaling up its production in India and is considering building a plant in Vietnam.
  • Daniel Ives, managing director of equity research for Wedbush Securities, says Apple would be able to move between 5% and 7% of the production of some iPhone models to India over the next 12 months in a best-case scenario.
  • Visit Business Insider's homepage for more stories.

Apple relies on its facilities in China to produce the iPhone, the product that accounts for most of the company's revenue. But Hon Hai Precision Industry Co., Apple's biggest iPhone assembly partner, recently said it's capable of moving iPhone production completely outside of China should the trade war continue to escalate, according to reports from Bloomberg and The Wall Street Journal.

The comments come as the trade war between the US and China deepens, with President Trump recently saying that he would move forward with a plan to impose tariffs on about $300 billion worth of additional goods if Chinese President Xi Jinping does not attend the G20 summit at the end of June. Trump also increased the tariff rate on more than $200 billion worth of Chinese goods from 10% to 25% last month.

Young Liu, head of the semiconductor division at the Taiwan-based manufacturer, said that the company would support Apple if it needed to move its production elsewhere, which would offer Apple a contingency plan if trade talks further deteriorate.

"Twenty-five percent of our production capacity is outside of China and we can help Apple respond to its needs in the US market," Liu said according to Bloomberg. "We have enough capacity to meet Apple's demand."

Hon Hai, more commonly referred to as Foxconn, has already increased its focus on facilities outside of China, according to recent reports. Foxconn Technology Group Chairman Terry Gou recently said in April that the iPhone will go into mass production in India this year, according to Bloomberg.

Older iPhone models are already produced at a at a facility in Bangalore, but Foxconn is starting trial production of Apple's newest smartphones in the country, Bloomberg reports. After the trial, Foxconn reportedly plans to move into full-scale assembly at a plant in Chennai. In December, Reuters also reported that Foxconn was considering building a factory in Vietnam in anticipation being impacted by a US-China trade war.

Foxconn is also planning to open a facility in the United States in Wisconsin that will produce liquid crystal displays and would employ 13,000 people. The company almost backed out of the plan after critics expressed concern about environmental risks and skepticism regarding the number of jobs it will create, but remained committed to the project after Gou spoke with President Trump, Reuters reported. That plant should be operational by 2020, according to The Associated Press.

But shifting production elsewhere will be no easy task for Foxconn given the logistics and cost involved. Foxconn's 1.4-square mile flagship plant is so large it's sometimes referred to as Foxconn City, and the manufacturer employs 1.3 million people in mainland China, as mentioned in an excerpt published in The Guardian from Brian Merchant's book, "The One Device: The Secret History of the iPhone."

Daniel Ives, managing director of equity research for Wedbush Securities, says Apple would be able to move between 5% and 7% of the production of some iPhone models to India over the next 12 months in a best-case scenario. "Apple has really bet the company's production on China and on Foxconn," he said to Business Insider. "It would be like General Motors or Ford saying we're going to move away from Detroit."

Analysts have previously indicated that the trade tensions between the US and China could impact Apple's iPhone production. In May, a team of analysts at Morgan Stanley led by Katy Huberty wrote in a note to clients that Apple's iPhone XS could become more expensive to produce as a result of Trump's recent tariff increase.

Specifically, Morgan Stanley wrote that the phone could see a price hike of $160. If that were to happen, however, the firm believes Apple would likely absorb the cost rather than asking consumers to pay more for its flagship iPhone.

Ives also said that if Trump does levy duties on roughly another $300 billion worth of Chinese goods, it could add between $100 and $120 to the iPhone's price should production be significantly impacted. Previously, a Wedbush Securities report co-authored by Ives said that the cost of making iPhone's could increase by as much as 2% or 3% because of the tariffs.

China is a key market for Apple - it's the firm's third largest market following the Americas and Europe. Poor sales in the region previously led the company to slash its revenue expectations ahead of its first quarter earnings report marking the first time it had done so in nearly 17 years.

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