In 2024, Apple expects to produce 230 million mobile phones throughout the year, of which about 195 million will be produced in China, accounting for about 84.8%. China is still the main assembly site for Apple mobile phones. India produces about 30 million units, accounting for 13%, and the remaining 2% is produced in Brazil. At the Foxconn factory in Zhengzhou, the entrance of Foxconn is bustling with workers going to and from get off work during rush hours. Recently, some media reported that "Apple's latest core orders for mobile phones are returning from India, and Zhengzhou Foxconn is recruiting on a large scale." Several people close to Foxconn told Caixin that Zhengzhou Foxconn has indeed entered the peak production stage of the new iPhone 16 series. Unlike the rumors of large-scale recruitment, there is not much difference in recruitment, only a slight increase. A person close to Foxconn emphasized that these new orders did not come from the return of Indian factories, but because Apple raised its expectations for the shipment of the iPhone 16 series, the total number of orders increased, and the order volume of the Zhengzhou factory increased accordingly. In recent years, Apple has been promoting the diversification of its supply chain, and Foxconn's factories in India have also received increasing attention. It is generally believed that Foxconn's iPhone orders in Zhengzhou are being diverted by Indian factories. However, data obtained by Caijing shows that the construction progress of Foxconn's Indian factory is not as expected. In terms of production capacity, it is currently only about one-fifth of the Zhengzhou factory; in terms of yield, it is far lower than the more than 98% of the Zhengzhou factory. In addition, Indian factories are also facing problems such as insufficient infrastructure, immature production lines, poor sanitary conditions, and high temperature and power shortages. Caijing also exclusively learned that India has not added new iPhone production capacity since this year, and its production capacity has even declined slightly recently. This is mainly affected by the restrictions on yield and industrial supporting facilities. Foxconn has 75%-80% of the iPhone production capacity in India. In addition to Foxconn, Apple's foundries in India also include Pegatron and Wistron. It was previously predicted that India's iPhone production capacity would be about 7.3 million units in the third quarter of 2024, but now it has been reduced to about 6.8 million to 7 million units. However, in the long run, India's production capacity planning and production capacity are both improving. According to the figures we have obtained, in 2024, Apple is expected to produce 230 million mobile phones throughout the year, of which about 195 million will be produced in China, accounting for about 84.8%. China is still the main assembly site for Apple mobile phones. India produces about 30 million units, accounting for 13%, and the remaining about 2% are produced in Brazil. Previously, the industry expected that India would undertake 20%-25% of Apple's orders in 2024, and increase to 25% in 2025. In other words, from the current situation, the process of transferring Apple's mobile phone assembly orders to India has stagnated in the short term. China is still the core production base for Apple's mobile phone assembly, but multiple information shows that India is accelerating its pace of catching up. In the long run, the trend of Apple's assembly business shifting from China to India remains unchanged. Zhengzhou Foxconn is currently irreplaceable Foxconn's Zhengzhou factory is mainly located in the Aviation Port Area in the southeast suburbs of Zhengzhou City, Henan Province, covering an area of 5.6 million square meters, with a peak staff of more than 350,000 people. As the world's largest iPhone assembly plant, most high-end models of the iPhone Pro and Pro Max series are assembled and produced here. A person close to Foxconn told us that the choice of production location for Apple's high-end models is a reflection of the factory's strength. He emphasized that at present, "other factories cannot reach the production and manufacturing capabilities of Zhengzhou Foxconn." iPhone production follows a strict schedule. Apple will release new phones in September, and the factory will officially ship them in mid-September. Generally speaking, the production capacity of Foxconn factories will start to increase from May to June each year, and enter the mass production stage from July to August. Therefore, every summer vacation is a large-scale recruitment season for Foxconn in Zhengzhou. It is normal for intermediaries to say that 50,000 people will enter the factory in two weeks. This year's wages are not special compared with previous years. Some workers said that the rumored wage increase on the Internet cannot be ruled out as a result of intermediary speculation, and they should still look at the actual wages rationally. Another intermediary said that after the peak production season, wages will be reduced. According to information obtained by Caijing, August to October each year is the peak season for Foxconn's recruitment. Last year, the highest hourly wage of Foxconn workers was around 28 yuan during the peak season, and this year's current wage is also around 25 yuan. Foxconn is Apple's most important foundry. According to data compiled by TrendForce cited by third-party agency Visual Capitalist, 70% of the iPhone 15 series released in 2023 will be produced by Foxconn, and 25% will be produced by Luxshare Precision. The remaining 5% will be undertaken by India's Tata Company. For the high-end iPhone 15 Pro series, Foxconn and Pegatron account for 70% and 30% of the production capacity respectively. On the top model iPhone 15 Pro Max, Foxconn and Luxshare Precision account for 70% and 30% of the production capacity respectively. For Foxconn Group, OEM iPhone is a good business, but Foxconn is currently facing two difficulties. The first is the pressure of supply chain transfer, which is also a common pressure for all fruit chain companies. This trend has already appeared before 2020. The epidemic has hit the global supply chain and accelerated the pace of global balance in Apple's component production and assembly. The deeper motivation lies in the intensification of geopolitical tensions between China and the United States, which has increased Apple's concerns about the stability of the supply chain, prompting it to take action and ask suppliers to find options to replace Chinese factories. The particularity of Foxconn is that the OEM products it is responsible for include Apple's highest value, the highest assembly production requirements and the most difficult high-end iPhone models. The aforementioned Foxconn interviewed told us that the transfer of iPhone production to India has begun since 2017, but due to imperfect production capacity and lack of worker experience, the yield rate has not been ideal. Especially for the current production of high-end models, Foxconn cannot find any other country to replace the Chinese supply chain for the time being. The second pressure comes from the fact that Foxconn is also facing OEM competition from other Apple chain companies. Luxshare Precision is the second largest manufacturer of iPhone mobile phones. In the early days, it entered the Apple industry chain through PC connectors, mobile phone charging cables and other parts. Since the first OEM iPhone 13 in 2021, its importance in the Apple chain has gradually increased. It is currently cooperating with Apple in the four major product lines of iPhone, Apple Watch, AirPods, and Apple Vision Pro. At the end of 2023, Wang Laichun, chairman of Luxshare Precision, said in an interview that Luxshare Precision produced three iPhone 15s for Apple, and the business doubled in the past year. People close to Foxconn told us that Foxconn has always occupied the highest part of Apple's foundry value chain, such as the production of Pro Max models, but the competitive threat posed by Luxshare Precision is increasing. A signal that has caused Foxconn to be highly vigilant is that in recent years, there has been a trend of shifting to Luxshare in the NPI part (new product introduction, the most important trial production stage before Apple's new products go into mass production) of high-end models. A Foxconn middle-level manager told Caixin that this year Luxshare Precision surpassed Foxconn for the first time on the iPhone 16 Pro Max and became the largest supplier, winning Apple's highest-end and most profitable model orders. This change has prompted Foxconn to increase its attention to Chinese factories in order to cope with competition from manufacturers such as Luxshare Precision. At the same time, there have been multiple rounds of news in the industry that Apple has raised its shipment expectations for new iPhone products due to its optimism about the relatively strong iteration of the iPhone 16 series. Morgan Stanley analyst Eric Woodling said Apple Intelligence has the potential to drive a record number of device upgrades, and iPhone shipments could approach 500 million units in the next two years, higher than the previous record-breaking 2021-2022 cycle. In other words, as Foxconn's iPhone 16 orders have increased recently and the Indian factory's production capacity and yield cannot keep up, the importance of the Zhengzhou Foxconn factory has been highlighted again. In order not to bet growth entirely on Apple's assembly business, Foxconn has been trying to enhance its diversification capabilities and diversify the risks of a single business in recent years. In 2019, Foxconn proposed a 3+3 strategy, which includes three emerging industries: electric vehicles, digital health and robots, as well as three new technology fields: artificial intelligence, semiconductors and new generation mobile communications. In order to promote the implementation of the new strategy, Foxconn Group has made many deployments in recent years. An important recent change is that Foxconn has increased its investment in Henan. In July 2024, Foxconn announced that it would invest 1 billion yuan in Zhengzhou to build a new business headquarters building. The first phase of the project is located in Zhengdong New District, with a construction area of about 700 acres. The main construction includes seven centers such as the headquarters management center and the R&D center, aiming to provide industrial resources, technical strength and other related support for Foxconn to implement the 3+3 strategy. In addition, Foxconn also plans to focus on the layout of new energy vehicle trial production center, solid-state battery and other projects in Zhengzhou Airport Economic Comprehensive Experimental Zone. Earlier, Foxconn's other two strategic actions in Zhengzhou included the unveiling of Foxconn's new business headquarters in Zhengzhou in April 2023. The second is the establishment of Henan Foxconn New Energy Vehicle Industry Development Company in January 2024, further focusing on the new energy vehicle industry. The aforementioned people close to Foxconn commented to us that these actions show Foxconn's attention to Henan and its dependence on the Chinese market. At present, iPhone foundry business and Chinese factories are still Foxconn's basic plate. However, he also said that new businesses such as electric vehicles and robots have not yet identified major customers, and the economic benefits that can be brought to Zhengzhou still need to be tested in practice. Therefore, whether it is the recent recruitment of workers by Foxconn or the increase in investment in Zhengzhou, the reason is not the return of iPhone orders, nor does it mean that the trend of Apple's supply chain shifting outward has stopped. India is still catching up quickly The pace of Apple's supply chain shifting outward has never stopped in recent years, and the impact has already appeared. Zhengzhou Foxconn is the world's largest iPhone production plant and export base. Under the dual influence of the relocation of the industrial chain and Apple's sluggish sales, according to Zhengzhou Customs data, Henan exported 13.951 million mobile phones from January to June this year, a year-on-year decrease of 47.4%. In Asia, Vietnam and India are the main destinations for Apple to diversify its supply chain risks. Domestic related Apple chain companies, including BYD, Luxshare Precision, Lens Technology and Goertek, have already begun to build factories in Vietnam. A supply chain manager of a Fortune 500 American company who recently visited Vietnam told us that the construction of new production lines for local consumer electronics in Vietnam is in full swing. According to Apple's official data in April this year, since 2019, Apple's cumulative investment in Vietnam through supply chain partners has exceeded 400 trillion Vietnamese dong, or more than 112 billion yuan. In April this year, Apple's Cook visited Vietnam, and at the same time, Apple announced that it would increase investment in Vietnam's supply chain. Figure/Screenshot of Cook's social media dynamics At present, Apple suppliers' production lines in Vietnam cover products such as iPad, wireless headphones, smart watches and HomePods. However, Vietnam has not yet accepted iPhone orders, and the production transfer of iPhones mainly flows to India. As a populous country, India has sufficient labor and a vast consumer market. Apple has set up a production line for iPhone SE (a relatively low-end Apple product series) in India since 2017. Subsequently, the company continued to expand its manufacturing business in India. iPhone 13 to iPhone 15 are all produced in India, and iPhone 15 series models have been produced and sold in India since their release. The aforementioned person close to Foxconn said that India accounted for about 12% of iPhone production capacity last year. In a report released in November 2023, mobile phone industry analyst Ming-Chi Kuo predicted that India's share of iPhone production capacity will increase to 20%-25% by 2024. During the same period, Foxconn's production scale in Zhengzhou is expected to decrease by about 35%-45%, and its production scale in Taiyuan is expected to decrease by about 75%-85%. JPMorgan Chase predicted last year that India would produce 25% of iPhones by 2025. Judging from the current progress, the pace of Apple's assembly orders shifting from China to India has not been as expected, and it is not easy to achieve this goal. Gao Hongxiang, senior research manager of IDC's global professional foundry and display industry research team, emphasized that Chinese manufacturing is inexpensive and good quality, and China is still Apple's best choice. It's just that in the geopolitical cracks, Apple has to disperse its production capacity and reduce risks around the world, and this strategy will not change in the short term. Since most of the parts in India still need to be imported from China, the overall production cost is high. For Apple foundries such as Foxconn, it is not cost-effective to expand orders in India. The aforementioned Foxconn middle manager revealed that a major change in the Foxconn factory in India this year is the change from full-process assembly to semi-finished product assembly. At least 60% of the processes are completed in China, and the remaining less than 40% are in India. He believes that this is the contradictory psychology of many suppliers, who want to backup production capacity overseas while worrying about the cost and efficiency of local production. According to the Apple Supplier List for the 2023 fiscal year released by Apple in April this year, in terms of factory distribution, there are 155 factories in mainland China, ranking first; the second is 49 factories in Taiwan Province of China, and the third is 41 factories in Japan; in Southeast Asian countries, Vietnam has 32 factories, Thailand and Singapore have 23 factories each, Malaysia has 18 factories, and the Philippines has 16 factories; in addition, the United States and India have 25 and 13 factories respectively. In other words, the Chinese supply chain is unlikely to be replaced in the short term, and East Asia still occupies the most important position in Apple's supply chain factories. What is worth paying attention to is India's growth potential. With a large population, India has become Apple's fastest growing key market. According to data from IDC, the international data company, shipments in India's ultra-high-end market of more than $800 increased by 22% year-on-year in the second quarter of 2024, second only to the growth rate of the mass-market of $100-$200, accounting for 7% of the overall smartphone market share. Apple accounts for 83% of this market segment. According to information officially disclosed by Apple in October 2023, in fiscal year 2023, Apple's Indian business revenue was nearly 500 billion rupees, a year-on-year increase of 48%, and its net profit was 22.29 billion rupees, a year-on-year increase of 76%. This is the fastest net profit growth of the company in India in the past five years. Citing Indian government sources, the media said that Apple plans to expand its production scale in India by more than five times to about $40 billion in the next four to five years. Foxconn currently has about 48,000 employees in India. Caijing exclusively learned from a person at Foxconn's Indian campus that Foxconn's Chennai campus, which is mainly responsible for the production of iPhones in India, will only have three production lines in 2022, and will expand to six in 2023. This year's plan is to expand to eight, with each production line producing about 12,000 units per day, which is lower than Zhengzhou. Foxconn in Zhengzhou has about 38 iPhone production lines, about five times the number in Chennai. In addition, Foxconn has purchased about 300 acres (about 1.21 million square meters) of land in Bangalore to build an iPhone assembly plant.
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