The US and China are in the early stages of a cold war, so companies like Foxconn and Apple are coming up with emergency back-up plans.
Young Liu, a senior Foxconn executive who leads the semiconductor business, recently revealed that Foxconn is prepared to move production of all iPhone models – that are imported to the US – away from China, if the trade war escalates. He said 25 per cent of Foxconn’s production capacity is already outside of China, so it can easily “help Apple respond to its needs in the US market”.
Keep in mind Apple makes up nearly half of Foxconn’s revenue, and that the manufacturer has been nimble enough to try avoiding trade costs from other countries. For instance, it is also attempting to move some iPhone production to India in order to skirt India’s 20 percent import duties.
Both Bloomberg and The Wall Street Journal reported that Liu, while at an investors’ conference, said Foxconn has enough capacity to meet Apple’s current demand. However, he noted, Apple has yet to ask Foxconn to move production out of China. That might change in June, when new tariffs up to 25 per cent are applied to the cost of phones and other devices imported from China.
Apple needs to decide whether it will eat that extra cost, possibly impacting its earnings per share by seven percent, or if it will pass those costs to US consumers. Bloomberg noted doing the latter could result in price increases up to 16 per cent and a drop in demand as much as 40 per cent.
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