WEBVTT - Apple Devises Complex Strategy to Reduce China Dependence

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<v Speaker 1>These sees Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 1>Stenebeck on Bloomberg Radio. All right, I gotta say yeah,

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<v Speaker 1>see you later. We've been talking about this a lot

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<v Speaker 1>broadly and more specifically when what Apple is doing when

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<v Speaker 1>it comes to its relationship and reliance on China and

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<v Speaker 1>a story by Bloomberg Technology reporter Mark German, who's a

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<v Speaker 1>go to on all things Apple for us here at Bloomberg.

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<v Speaker 1>He gets into how Apple is specifically looking beyond China

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<v Speaker 1>to remake its supply chains, which have been the brainchild

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<v Speaker 1>of now CEO Tim Cook. This story in the new

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<v Speaker 1>issue of Bloomberg Business Week on newstands later this week tomorrow,

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<v Speaker 1>in fact, already online at Bloomberg dot com slash business weekend.

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<v Speaker 1>Of course, I'm the Bloomberg terminal, So let's get more

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<v Speaker 1>on what Apple and Tim Cook are up to. Delighted

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<v Speaker 1>to have with us Bloomberg BusinessWeek Technology editor Joshua Brustein

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<v Speaker 1>and the editor of Bloomberg Business Week, Joel Weber, both

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<v Speaker 1>here in our Bloomberg Interactive Brokers studio. I feel like

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<v Speaker 1>when Apple talks or when Apple moves, we all pay attention.

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<v Speaker 1>All right, No, doubt please. They are. They are the biggest,

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<v Speaker 1>most important tech company in the world, I think, and

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<v Speaker 1>so much of that has been built by Tim Cook.

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<v Speaker 1>And when Tim Cook builds something like that, it is

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<v Speaker 1>done at scale, and it is done in China. But

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<v Speaker 1>what we have witnessed over the past couple of years,

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<v Speaker 1>and elements of this we've reported about before, is that

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<v Speaker 1>Apple has sort of started to have a wondering eye

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<v Speaker 1>and looked outside the country. And I think a lot

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<v Speaker 1>of that has been just informed by the US China tensions.

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<v Speaker 1>And what we've reported before is that India is of interest.

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<v Speaker 1>But what we now know, based on Mark Grumman's reporting

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<v Speaker 1>in this story that Josh edited for the magazine, is

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<v Speaker 1>that it's not just India and that it perhaps it

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<v Speaker 1>is much bigger than Apple has previously indicated. Just how big, Josh, Yeah,

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<v Speaker 1>I think at the beginning of the pandemic, there began

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<v Speaker 1>to be some talk about, well, maybe Apple's reliance on

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<v Speaker 1>China could be a problem. What are the disruption is

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<v Speaker 1>going to be like? At the time, CEO Tim Cook

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<v Speaker 1>said any changes are going to be just adjusting a

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<v Speaker 1>few knobs. And what we see now is those are

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<v Speaker 1>maybe really big knobs, because there's to be fair, they

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<v Speaker 1>might might still be knobs, but they are perfectly designed

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<v Speaker 1>knobs though, just beautiful that Apple is looking increasingly to

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<v Speaker 1>do iPhone production in India. This is not instead of China,

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<v Speaker 1>it's an addition to But the most aggressive timelines would

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<v Speaker 1>have about a quarter of all iPhones made there by

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<v Speaker 1>twenty twenty five. And then you see also big knob,

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<v Speaker 1>and it's showing that it's not like all the eggs

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<v Speaker 1>in one basket, right in many ways exactly, I think

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<v Speaker 1>the company just is seeing kind of the obvious risks

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<v Speaker 1>here of having so much of your production focused on

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<v Speaker 1>one geographic area, especially one whose relationship with US is

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<v Speaker 1>so tenuous. Can we take a step back, Can just

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<v Speaker 1>talk about Tim Cook? I mean he was the is

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<v Speaker 1>the man of supply chains right ahead of before becoming

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<v Speaker 1>CEO operations, mister ups. Yeah, absolutely, Yeah. Tim Cook is

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<v Speaker 1>largely given credit for being the architect of Apple's China strategy,

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<v Speaker 1>which is in large part, you know, part of the

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<v Speaker 1>part of the reason for success. The fact that the

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<v Speaker 1>iPhones are made so well and so smoothly is because

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<v Speaker 1>of what Tim Cook has built in China. And now

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<v Speaker 1>we see um you know, him undertaking the very large

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<v Speaker 1>task of replicating that elsewhere. So one other company that's

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<v Speaker 1>been absolutely instrumental to Apple's growth is Foxcon, which quietly

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<v Speaker 1>actually does a lot of the manufacturing and assembling. How

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<v Speaker 1>does Foxcon fit into this game that Apple seems to

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<v Speaker 1>be playing. Yeah, absolutely, that's a great point. A lot

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<v Speaker 1>of what's happening when we talk about Apple making phones

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<v Speaker 1>is actually Apple working with Foxcon, a couple of other

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<v Speaker 1>large suppliers, and then literally thousands of small suppliers to

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<v Speaker 1>make to make all these plans. And Foxcon has been

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<v Speaker 1>working in India on iPhones for about five years, maybe

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<v Speaker 1>a little bit longer, and as well as some of

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<v Speaker 1>its other large suppliers. But you see it really doubling down,

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<v Speaker 1>opening new facilities and trying to ramp up the ones

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<v Speaker 1>that are there. Is there a concern about retaliation from China?

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<v Speaker 1>I mean, I know the answer is yes, But to

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<v Speaker 1>what extent is that concern plane into Apple and Tim

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<v Speaker 1>Cook's decision making. Obviously that's a concern, and the story

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<v Speaker 1>opens with Tim Cook actually making his first public trip

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<v Speaker 1>to China since recently. This was yeah, just I think

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<v Speaker 1>maybe about a week ago and surprising given what we've

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<v Speaker 1>been talking about, you know, Ireland, India, other locations. Yeah,

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<v Speaker 1>and he went there and sort of, you know, it

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<v Speaker 1>felt very much like a diplomatic trip, smoothing things over,

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<v Speaker 1>telling China how important it was, meeting with high level

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<v Speaker 1>government officials. And I think Apple's plans, according to Mark's reporting,

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<v Speaker 1>is to do this in a gradually enough way that

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<v Speaker 1>will reassure China that, you know, Apple is still an

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<v Speaker 1>important partner. You're still number one, and that number one

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<v Speaker 1>still dating. We're okay, We're okay. You know, I think

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<v Speaker 1>it is I'm tempted to joke there. But when you

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<v Speaker 1>think about the geopolitical tensions here and the significance of Taiwan,

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<v Speaker 1>which we have not talked about here, which is actually

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<v Speaker 1>where much of China's chips come from, much of Apple's

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<v Speaker 1>chips come from. Um, that's actually one of the things

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<v Speaker 1>that really stuck out to me here because there's little

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<v Speaker 1>minuscule things that I want to talk about, like the

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<v Speaker 1>screws that go into phones that they have to actually

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<v Speaker 1>just make sure that they have supplies for. But like

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<v Speaker 1>you can probably find screws where where, we find screws wherever,

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<v Speaker 1>but you can only really find chips in Taiwan. Right,

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<v Speaker 1>And that's another ye actually not a huge part of

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<v Speaker 1>this story, but I think a huge story to watch

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<v Speaker 1>going forward. There's a little bit of reporting that Mark

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<v Speaker 1>as that Apple is also exploring some alternatives to um,

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<v Speaker 1>the chips that TSMC makes for in Taiwan. The problem

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<v Speaker 1>is there, really, as Joe says, aren't any alternatives. This

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<v Speaker 1>is such a that's such an immense undertaking that Taiwan

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<v Speaker 1>is basically where you have to go for that. Well,

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<v Speaker 1>if you think about it, if that supply chain is disrupted,

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<v Speaker 1>you have no Apple products, right and in terms of

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<v Speaker 1>the more than Apple but no fire Yeah, exactly exactly.

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<v Speaker 1>But the quality like not all chips are the same

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<v Speaker 1>and TSMC, right, that's another part of it. I mean, yes,

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<v Speaker 1>you can maybe get chips elsewhere, but they're not going

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<v Speaker 1>to ASSERTI meet the standards of what Apple needs for

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<v Speaker 1>its products. Yeah, that's exactly right. That that is a

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<v Speaker 1>major choke point for Apple and frankly, um, you know

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<v Speaker 1>the world accur right, A Taiwan is something definitely to

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<v Speaker 1>keep an eye on. Okay, So Apple on occasion has

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<v Speaker 1>done this before, and we talked about India and there's

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<v Speaker 1>other countries we should also talk about, because in addition

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<v Speaker 1>to iPhones, there's this impacts other products in Apple's portfolio.

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<v Speaker 1>But I also just want to drive attention to the

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<v Speaker 1>fact that Apple has done this before, and there's been

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<v Speaker 1>some efforts to even bring some of the productions back

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<v Speaker 1>to the US, and it hasn't always gone well. So

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<v Speaker 1>how is Apple attempting from what we know, because they

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<v Speaker 1>also say that they're just playing with little knobs, But

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<v Speaker 1>based on what we know, how are they attempting to

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<v Speaker 1>make sure that the quality control of issues that they've

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<v Speaker 1>sort of encountered before don't happen again. Yeah, I do

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<v Speaker 1>think it's striking to see the difference between past manufacturing adventures,

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<v Speaker 1>if you will, from Apple and what's going on in

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<v Speaker 1>India in particular now. It has tried to set up

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<v Speaker 1>some mac production in Brazil in the United States in

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<v Speaker 1>the past, and those felt like tokens, token efforts. What

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<v Speaker 1>you see in India is let's get all the suppliers

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<v Speaker 1>to do the glass, to do the screws, as you say,

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<v Speaker 1>to have like our BIGG assembly, our BIGG assembly firms,

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<v Speaker 1>They're doing everything and really start from the ground up,

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<v Speaker 1>like like Tim cooked it in China and it might

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<v Speaker 1>take two decades to get there, but they were gone. Okay,

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<v Speaker 1>So let's let's talk about some of these other countries

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<v Speaker 1>that come up here, because India is one that I mentioned,

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<v Speaker 1>But who who else and what else is getting get

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<v Speaker 1>made here? It is part of this effort to to

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<v Speaker 1>expand potentially be outside of China. Right Exactly. We've been

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<v Speaker 1>talking about the iPhone a lot because that's most of

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<v Speaker 1>what Apple makes. But it does make, you know, it

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<v Speaker 1>makes product, it makes other products. It makes the Mac,

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<v Speaker 1>which is being handled in both Vietnam and Malaysia in

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<v Speaker 1>a little bit in Ireland. Um. And then when you

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<v Speaker 1>get to other products, um, you'll see you know, I

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<v Speaker 1>mean it has it has AirPods, it has iPads. Those

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<v Speaker 1>things are also going to be spread about in different ways.

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<v Speaker 1>But Southeast Asia for the Mac and India for the

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<v Speaker 1>phones is kind of the basic way to think about Ireland.

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<v Speaker 1>Ireland was a surprise there for me. Wasn't expecting them

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<v Speaker 1>to double down there. Yeah, you mean in terms of

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<v Speaker 1>what because there's a little technic goes though, I mean

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<v Speaker 1>clearly in manufacturing. My question on a place like Ireland

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<v Speaker 1>is the cost of the labor and how do you

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<v Speaker 1>not end up passing that cost down to the consumer,

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<v Speaker 1>Like I have a double question here of how it's

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<v Speaker 1>going to impact my iPhone bill. Bad questions. Yeah, but yes, consumer,

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<v Speaker 1>I think they I think they pick the things that

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<v Speaker 1>they manufacture there, and it's probably more of an assembly

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<v Speaker 1>role than a manufacturing one, if I'm if I understand that.

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<v Speaker 1>My understanding is in other places, like for instance, in

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<v Speaker 1>the United States, where some macs are assembled, it is

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<v Speaker 1>the very final assembly. It's it's smaller runs, and obviously labor.

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<v Speaker 1>You can just look at where they're doing manufacturing and production,

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<v Speaker 1>and labor costs clearly factor and they're they're targeting lower

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<v Speaker 1>labor costs. So I talked about the screws for a second.

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<v Speaker 1>But Apple does have teams that they are embedding there.

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<v Speaker 1>And I found this to be fascinating too, because there's

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<v Speaker 1>all these like almost like little pieces that they have

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<v Speaker 1>to account for as things get made, that they have

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<v Speaker 1>to make sure that if they were to change supply chains,

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<v Speaker 1>are these little invisible pieces accounted for too, right, Like,

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<v Speaker 1>so talk to us about how focused on the minuscule

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<v Speaker 1>stuff Apple has become. Yeah, these are the these are

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<v Speaker 1>the Tiger teams that Mark mentions in the story. And

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<v Speaker 1>this is another interesting point inside the company, inside Tiger

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<v Speaker 1>teams within Apple. Yeah, and this is another interesting point

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<v Speaker 1>about whether Apple makes these phones or someone else is

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<v Speaker 1>making them. You know, Tiger teams are oftentimes going into

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<v Speaker 1>supplier companies, but these are Apple employees who are They're

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<v Speaker 1>trying to make sure suppliers are sourcing things in the

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<v Speaker 1>right way, the most efficient way, getting the right parts,

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<v Speaker 1>resilient against any disruptions, and really kind of helping them,

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<v Speaker 1>you know, turn the knobs if you will, Maybe you

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<v Speaker 1>turn the knob a little, maybe turn it a lot knobs.

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<v Speaker 1>We're going to be talking about. NASA really want like

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<v Speaker 1>a big Apple knob. That would be great. I mean,

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<v Speaker 1>thirty seconds left here, I mean how I just feel

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<v Speaker 1>like this is just a moment in time where I

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<v Speaker 1>feel like it's the beginning. I'll give you a big change.

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<v Speaker 1>I'll give you Mark's big takeaway, I think, which is,

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<v Speaker 1>look like Tim Cook built this once. Yeah, if anybody

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<v Speaker 1>can do it again, it's going to be him, right,

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<v Speaker 1>like the right person to figure it out. Right. But

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<v Speaker 1>I just optimistic view. I just look at that delicate

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<v Speaker 1>balance because I remember when he was in China because

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<v Speaker 1>we've been starting to hear stories about them changing their

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<v Speaker 1>supply chain, and I thought, wow, that was a big,

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<v Speaker 1>powerful visual of Okay, everything's okay. We're still in China.

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<v Speaker 1>But it's such a delicate balance. Yeah, there you go.

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<v Speaker 1>I'll give you a perfect little boat. I know, and

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<v Speaker 1>I screwed it out. That's what I do. Joe Webber,

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<v Speaker 1>editor of Bloomberg. This is why you're the editor Bloomberg

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<v Speaker 1>Business Week. Here and I'm in here this scene Joshua Brustein,

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<v Speaker 1>Technology Editor, Bloomberg Business Week. It is in the new

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<v Speaker 1>issue of Bloomberg Business Week.