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Author | Value Planet Lin Jie Editor | Weber

Recently, Xiaguangshe noticed an unusual signal on the recruitment walls in various places in Shenzhen: the number of upstream and downstream companies in Apple's supply chain suddenly increased dramatically, becoming the main force in the recruitment market; and in Zhengzhou, 1,360 kilometers away from Shenzhen, the Foxconn factory secretly adjusted the hourly wage back to 25 yuan, hoping to sprint to the peak period of 30 yuan.

There is another signal that is equally extraordinary. On July 24, the Henan Provincial Government decided to support Foxconn in building a new headquarters in Zhengzhou, with a construction area of ​​about 700 acres and a total investment of about 1 billion yuan.

An even more significant signal is that major manufacturers such as BYD and Luxshare Precision have joined the iPhone 16 supply chain this year.

The combination of these three signals seems to indicate one fact: Apple's supply chain is flowing back to China. After a period of "exodus", this international giant in the technology field has learned a "lesson" with its declining sales data: any company in the world, if it wants to produce the most innovative products, cannot do without China's complete supply chain system.

The globalization of China's supply chain has not only reduced costs in various industries and improved the economic efficiency of enterprises, but also made countless enterprises highly dependent on this supply chain and become part of it. The linking power of the supply chain represents the closeness of interaction between enterprises, which determines the efficiency of the supply chain and the vitality of economic flow.

Apple is transferring its production capacity back to China. Will it be painful if it hits a wall?

According to a report by Cankao Xiaoxi citing Taiwan's China Times, in recent years Apple has implemented a strategy of "de-risking" and diversifying its supply chain, shifting orders to India, but the actual operation has not been smooth.

In 2024, Apple has transferred part of its production capacity back to its foundries in mainland China. Major manufacturers such as BYD and Luxshare Precision have joined the iPhone 16 supply chain and become Apple's latest foundry partners.

In its 2023 financial report, Apple released its annual supply chain list. According to the list, there are a total of 204 companies in China that provide material supply support for Apple products, 49 of which are from Taiwan Province.

The second-ranked country is Japan, with a total of 41 companies. In Southeast Asia, Vietnam has 32 companies, Thailand and Singapore have 23 companies each, Malaysia has 18 companies, and the Philippines has 16 companies. In addition, the United States and India have 25 and 13 companies respectively.

In March this year, Cook visited China. At that time, he stood in Shanghai and raised his hand to many cameras and made a "yeah" gesture, which was quickly captured by the media and put on the front page of the news. Subsequently, the US Department of Justice sued Apple, accusing it of monopolizing the smartphone market. At that time, Apple's market value evaporated by more than 800 billion yuan overnight.

So, why did Cook take the risk and complete his trip to China during this sensitive period?

Source: 2024 China Development Forum

You should know that in addition to meeting and shaking hands with Minister of Commerce Wang Wentao, Guangdong Provincial Party Committee Deputy Secretary and Shenzhen Municipal Party Committee Secretary Ma Xingrui, and Shenzhen Mayor Xu Qin, Cook also met with three entrepreneurs in China: Everwin Precision General Manager Chen Xiaoshuo, Lens Technology Chairman Zhou Qunfei, and BYD Chairman Wang Chuanfu.

Changying Precision, a Chinese manufacturer of metal exterior parts for mobile phones; Lens Technology, a Chinese manufacturer of brittle materials such as glass, ceramics, and sapphire; BYD, a Chinese manufacturer of "everything, including masks."

Cook had to resolutely implement the "de-risking and diversifying supply chain strategy" that year due to pressure from the United States. However, at this entrepreneur meeting, Cook changed his attitude and said bluntly, "For Apple's supply chain, there is no place more important than China."

How important is China? After trying to leave China, Apple's ranking has changed to "others". This is something that neither Apple nor its shareholders want to see.

The second quarter of 2024 ended dramatically, and the Chinese smartphone market ushered in a new pattern. According to the latest data from research institutions IDC and Canalys, the top five mobile phone manufacturers are vivo, Huawei, OPPO, Honor, and Xiaomi. Apple fell out of the top five and joined the ranks of "others".

The general view in the industry is that the decline in Apple’s sales data is more due to the previous large-scale transfer of production capacity. The elimination of the Chinese supply chain directly led to Apple’s mobile phones falling out of the top five in the Chinese market.

Since the epidemic was lifted, Cook has said more than once that Apple's "recovery" will start from China. According to data from market research firm TechInsights, the top five global iPhone shipment markets will be reshuffled in 2023. Among them, the US data was overtaken by China's data, and China became Apple's second largest market. The ranking at the time was China, the United States, Japan, the United Kingdom, and India. In the global market share of iPhone at the time, China accounted for 24% and the United States accounted for 21%.

However, on August 1, 2024, Apple released its third-quarter financial report, showing a 6% drop in sales in China to $14.72 billion.

Apple was once very popular in the Chinese market. Some people have summarized several reasons for its strong sales. In addition to the "spirit of innovation", a very important reason is the national sentiment, that is, the personality cult effect. However, as Apple's supply chain moved out of China, it caused some uncomfortable emotions among Chinese consumers. After this emotion invaded the market level, it gradually turned into a sharp decline in consumption willingness.

Interestingly, within two hours after the news of "Apple's industrial chain returning to China" broke out, the news that "Apple will manufacture iPhone 16 Pro and Pro Max in India" also began to flood the self-media platform. Part of the content reads: "This is the first time that high-end Pro series models are produced in India. Apple is paying more and more attention to the Indian smartphone market and the Indian mobile phone supply chain."

In the original manuscript, there was a sentence that seemed to have been collectively deleted, which roughly meant that "Apple will manufacture iPhone 16 Pro and Pro Max in India", and this action "broke the rumors that BYD had grabbed the order."

Consumers are no longer as vulnerable to exploitation as before

As Apple's first head-mounted device, the importance of Vision Pro is self-evident. It can even be said that Apple hopes to "conquer the metaverse" through this device.

But it is a bit expensive to fight for this kingdom.

The Vision Pro hardware costs as much as $1,700, which is one of the highest prices among head-mounted display devices. Apple explains this as the "transportation value" being too high, which in layman's terms means the "moving" of raw materials.

You should know that in this head device, the words "Made in China" can be found everywhere on various components. For example, the company that supplies the PCB board of this product is China Pengding Holdings, the company that supplies the battery is China Desay Battery, and the company that supplies the IPD electric adjustment module is China Zhaowei Electromechanical; at the same time, in the traditional Apple supply chain, China's Goertek, Changying Precision, Lens Technology, etc. are also on the list. It is understood that the proportion of mainland Chinese supply chain companies in this device has increased significantly to about 60%.

This means cross-border transportation. Generally speaking, Chinese parts and components will be transported to Indian factories by sea, land and air within a certain period of time. After processing and assembly, they will become Apple products and equipment, and then shipped to China for sale. In this process, the extra costs incurred will eventually be recovered from consumers.

However, mobile phones are not easy to sell, and the market has not been very prosperous in recent years. Analysts said that the mobile phone industry has entered a period of global economic recession, coupled with the sluggish consumer electronics market, which has led to a continued downturn in the global consumer electronics market.

The Nihon Keizai Shimbun reported that the global smartphone penetration rate will drop to a freezing point in 2050. The market is almost saturated, and it is particularly important for Apple to stimulate consumers' desire to replace their phones while also finding a way to share the existing pie.

Canalys statistics show that in 2024, Apple's global market share in the second quarter will be 34%, lower than 38% in the same period last year. In addition, a research institute has released the latest data, and global smartphone shipments in 2023 are expected to decrease by 4.7% from 2022 to 1.15 billion units, a 10-year low.

Consumers are not as easy to get as before. For Apple, the relocation of the supply chain has brought some inconveniences. If one step is wrong, every step will cost money.

Looking back at these years of "going abroad", do you know how Apple is doing overseas?

In 2023, the iPhone 15 series was released on September 13 and went on sale on September 22. Among this wave of products, although the products produced in India account for less than one-tenth of the total output, the yield rate is only 50%, and a large number of parts need to be imported from mainland China.

What is more troublesome is that after the new product was sold, the Indian-made iPhone 15 was exposed by online media as "exceeding the standard for E. coli". Taking into account various comprehensive factors such as culture and religion, the official media rarely mentioned this reason, but on the self-media platforms that are not so political, this news has become known to everyone.

Fire cannot be contained. Apple phones have suffered an unprecedented wave of returns worldwide. It is said that Apple's Chinese supply chain companies were a little confused at the time. After working hard for more than ten years, they looked up and found that "iPhone" and "E. coli" could actually be put together? In order to change the embarrassing situation, Apple had no choice but to reduce the price of its new phones for promotion, but the sales were not optimistic.

In fact, affected by the overall environment, Apple's sales in recent years have not been very good. In 2023, a group of Apple executives, including Cook, implemented a new salary plan - salary cuts. It is understood that Cook's target total salary in 2023 has been reduced by half to $49 million. In 2022, this figure was $99.42 million. In the conference call, Cook even said that Apple does not rule out layoffs, but layoffs are the last resort.

For Apple, the pressure comes not only from the weak growth of market sales data, but also from the aggressive Chinese "Huami OV Honor" series, and the cake-sharing is getting stronger and stronger. As usual, Chinese mobile phone companies will launch a new round of product launches in the second half of each year to help brands compete for more market share. This year, this kind of competition is still there, especially Apple's old rival Huawei. It is reported that its new product Mate70 series is expected to be released in September.

Facing direct competition, Cook cannot help but be anxious. He once again placed his hopes on China's strong supply chain and increasingly active consumer market. If we only talk about manufacturing capabilities, Shenzhen alone can take the lead. It is understood that in Shenzhen, 95% of the components of mobile phones can be assembled within a one-hour commuting circle. It is difficult to find a second place like this in the world.

But can Apple, which has returned to China, really return to its former "Iron Throne"? Some analysts believe that due to Apple's relocation of its supply chain, the attitudes of its supply chain companies have changed significantly, and it seems difficult for Apple to reproduce its former "imperial treatment" in terms of cooperation.

In the past, most companies in Apple's supply chain had only one customer, because Apple's orders were not only of considerable quantity and amount, but also stable cooperation, and also helped the supply companies build a global reputation. For many companies, entering Apple's supply chain is something that needs to be widely advertised.

However, after this "transfer" incident, some companies lost their only major customers and were forced to start looking for other ways out. In order to survive, they had to expand into more areas, and their strong production capacity helped them enter other industries besides mobile phones, which in turn opened up another broad road.

For example, Foxconn has opened up a new track in Zhengzhou. On July 23, Henan Governor Wang Kai attended the launch ceremony of Foxconn's new business series investment projects and the groundbreaking ceremony of the new energy vehicle pilot center. It is reported that Foxconn will focus on the layout of electric vehicle pilot centers, solid-state batteries and other projects in the Zhengzhou Airport Economic Comprehensive Experimental Zone.

Tianyancha shows that Foxconn New Energy Vehicle Industry Development (Henan) Co., Ltd. was established in January this year with a registered capital of 500 million yuan. Its business scope includes automobile parts and accessories manufacturing, motor manufacturing, new material technology research and development, new energy vehicle sales, and road motor vehicle production.

So people found that while Apple CEO Cook was reorganizing the supply chain in mainland China, his old partner Foxconn started to develop new energy in Zhengzhou. I remember that on December 6, 2017, Foxconn founder Terry Gou said in a dialogue session at a Fortune Forum: "I still miss Steve Jobs very much." Rather than saying that Terry Gou misses the business friendship with Steve Jobs since they met in 1995, it is better to say that he misses that era of ups and downs.

Finally, let's review the timeline: In May this year, some American politicians hyped up the so-called "overcapacity" of China's new energy industry; in July, Apple supplier Foxconn announced new investments in Zhengzhou, spending 1 billion yuan to "prepare for" electric vehicles, energy storage batteries, etc. At the same time, Apple's supply chain returned to China, and its supply chain company list included BYD, the leader of China's new energy companies.