Apple is transferring the production of its high-end iPhones from China to India, where major a technology manufacturing giant, Foxconn, is investing $ 356 million to expand its Tamil Nadu plant. Halting its production line and heading to the suburbs of Chennai is a risky game, but necessary to avoid the fallout from President Donald Trump’s trade war.
In November, Trump said he could impose a 10% tariff on iPhones from China and said that it wouldn’t be a major problem for consumers. Just weeks before his remark, Apple had reduced by one third its project to produce 70 million iPhone XR. It then plans on further reducing production orders early next month for the three new iPhone models. It was partly because of Chinese competition. In July, Huawei went ahead of Apple to become the world’s second largest smartphone maker.
High Product Pricing, a Major Concern
Another problem is that consumers are simply tired of higher and higher prices, a problem recognized by CEO Tim Cook in 2016, who made it clear a decrease in prices was absolutely necessary. Little has changed since.
The iPhone 7 debuted this year starting at $ 649, while the new iPhone XS Max 512GB starts at $ 1,449. Of course, the XS Max is a better phone, but even the middle-class models are costly, with a so-called affordable iPhone at 7% more than last year’s iPhone 8 and 15% more than the iPhone 7.
Apple’s Growth Slump
In a letter to investors on January 2, Tim Cook reduced forecasts for the first quarter results of an initial forecast ranging from $ 93 billion to $ 84 billion. Cook blamed China’s economic deceleration on customers who had replaced their iPhone batteries instead of buying new iPhones. Apple replaced 11 million batteries last year, against 1 million usually.
Of course, there is not a single reason why Apple earns less money, but it all depends on prices. Maybe Apple has pushed its Apple tax a little too far this time. That’s why the threat of a 10% tariff is a bridge too far for Apple, as it is no longer the king of high-end phones. Samsung is now the world’s largest maker of smartphones and Huawei is in second place. It is not the champion of innovation either. Beyond Wifi 6, its range of iPhones for 2019 is little more than an indispensable base for devices such as Apple watches, AirPod, AirCharge, and 3.5mm dongle adapters. Nor does the trade war contribute to innovation.
Impact Of The Trade War
On taking a closer look at some of the allegations made by the United States against China in relation to intellectual property infringement, it is clear that the United States government thinks that Chinese scientists spearheading research and development in key American companies are the ones leaking information to China. But if the government does think that this is the case, the most logical step for the American government would be to limit the number of H1-B visas available to nationals of certain jurisdictions.
All this is compounded by the fact that Trump has no idea of the repercussions of his trade war on Apple. Not only do Trump’s statements contradict what actual statistics, as well as the facts and figures, indicate, but it is also detrimental to the economy and the market on the whole.
The market, being a highly unstable entity could use some firm political thought and action instead of just uncertainty. All in all, Apple has many key decisions to make about its practices. The move away from China into India could work in its favor, but it will have to step up on innovation and affordability if it wants to regain its place as the number one smartphone manufacturer of the world.