1 00:00:00,080 --> 00:00:02,880 Speaker 1: So we're joined out by Dan Ives, he's managing director 2 00:00:02,920 --> 00:00:06,880 Speaker 1: and senior equity strategist at Wedbush Security, talking about Apple 3 00:00:07,640 --> 00:00:11,559 Speaker 1: shifting its production out of China, and Dan, it almost 4 00:00:11,760 --> 00:00:14,160 Speaker 1: seems so obvious, you short, at a very young age, 5 00:00:14,200 --> 00:00:16,239 Speaker 1: not to put all your eggs in one basket. Is 6 00:00:16,280 --> 00:00:19,040 Speaker 1: that what Apple did when it came to China? And 7 00:00:19,280 --> 00:00:23,119 Speaker 1: is it now reaping the consequences of that decision? Yeah, 8 00:00:23,120 --> 00:00:25,880 Speaker 1: And I mean they really dove into deep end of 9 00:00:25,920 --> 00:00:28,200 Speaker 1: the pool. I mean in China that's going to keep 10 00:00:28,200 --> 00:00:31,880 Speaker 1: part of their success my phone production, and it almost 11 00:00:31,880 --> 00:00:34,200 Speaker 1: it really came to bite them, you know, in terms 12 00:00:34,240 --> 00:00:38,400 Speaker 1: of in this Christmas season, the shortages that we're seeing 13 00:00:38,440 --> 00:00:43,000 Speaker 1: on iPhones, the zero COVID policy, the protest Fox con 14 00:00:43,520 --> 00:00:46,560 Speaker 1: It's really I think the clock struck midnight for Apple 15 00:00:46,600 --> 00:00:48,839 Speaker 1: in China. Now they're going to have to vote to 16 00:00:48,920 --> 00:00:51,680 Speaker 1: diverse fire over the coming years, you know, Dan, even 17 00:00:51,720 --> 00:00:54,360 Speaker 1: before we got to the pandemic, I mean, during the U. S. 18 00:00:54,440 --> 00:00:57,560 Speaker 1: China trade war, at the repercussions there, I mean, I 19 00:00:57,600 --> 00:01:01,760 Speaker 1: recall we were doing stories on the program about boycotts 20 00:01:01,760 --> 00:01:04,440 Speaker 1: of Apple products on the mainland. You think that that 21 00:01:04,480 --> 00:01:08,480 Speaker 1: may have been a wake up call for Apple back then, Well, yeah, 22 00:01:08,480 --> 00:01:11,160 Speaker 1: and look, I think for Apple it's the hearts and 23 00:01:11,280 --> 00:01:13,560 Speaker 1: lungs of the Apple story or in China, I mean 24 00:01:13,640 --> 00:01:18,880 Speaker 1: we're talking iPhone production demand. The problem here is that 25 00:01:19,000 --> 00:01:23,120 Speaker 1: the zero COVID policy in China has basically become untenable, 26 00:01:23,200 --> 00:01:27,679 Speaker 1: unsustainable for Apple, and I think what we saw this month, 27 00:01:28,120 --> 00:01:30,559 Speaker 1: it's been a train wreck situation. I mean, we're gonna 28 00:01:30,600 --> 00:01:34,240 Speaker 1: have ten to fifteen million iPhone unit shortages, and I 29 00:01:34,280 --> 00:01:37,800 Speaker 1: think ultimately for Cook and Cooper Tino, it was a 30 00:01:37,800 --> 00:01:40,479 Speaker 1: straw that broke the camels back and they really now 31 00:01:40,800 --> 00:01:44,360 Speaker 1: recognized they're going to have to much more aggressively get 32 00:01:44,400 --> 00:01:47,280 Speaker 1: out of China than they even thought because they've been 33 00:01:47,360 --> 00:01:51,320 Speaker 1: have onm like up to this point. So is it 34 00:01:51,440 --> 00:01:54,640 Speaker 1: possible to quantify what's your intimate of the impact on 35 00:01:54,680 --> 00:01:57,920 Speaker 1: the next quarter of endings for Apple? Look, I mean, 36 00:01:57,960 --> 00:02:02,320 Speaker 1: I think right now we're looking at fifteen iPhone units 37 00:02:02,360 --> 00:02:05,480 Speaker 1: that potentially, you know, could ultimately be thrown out the 38 00:02:05,480 --> 00:02:09,359 Speaker 1: window because of the shortages now that ultimately moves into 39 00:02:09,440 --> 00:02:13,320 Speaker 1: the March quarter. That's why the stock is not reflecting 40 00:02:13,520 --> 00:02:16,880 Speaker 1: so much negativity because it's more of a deferral but 41 00:02:17,000 --> 00:02:19,440 Speaker 1: I mean when it really comes to the shortage, it's 42 00:02:19,440 --> 00:02:23,160 Speaker 1: done precedent for Apple, and I think that's something where 43 00:02:23,320 --> 00:02:26,600 Speaker 1: it's the most important holiday season and iPhone and fourteen 44 00:02:26,720 --> 00:02:30,079 Speaker 1: pros you know there, you know, to find those in 45 00:02:30,120 --> 00:02:34,360 Speaker 1: the US or even globally, you're almost impossible before Christmas. Okay, 46 00:02:34,400 --> 00:02:37,320 Speaker 1: so you're advising Apple now on what's next. How do 47 00:02:37,360 --> 00:02:41,080 Speaker 1: you make changes to the production process. How do you 48 00:02:41,120 --> 00:02:44,639 Speaker 1: make changes to the supply chain to insulate yourself against 49 00:02:44,639 --> 00:02:48,120 Speaker 1: this type of event happening again in some form or 50 00:02:48,160 --> 00:02:51,680 Speaker 1: another down the road. Is there a country in Asia 51 00:02:52,480 --> 00:02:55,120 Speaker 1: that you feel that you could get production up and running, 52 00:02:55,360 --> 00:02:57,880 Speaker 1: you know, pretty quickly. I mean I would imagine the 53 00:02:57,960 --> 00:03:00,919 Speaker 1: investment here a company like Fox On this is years 54 00:03:00,960 --> 00:03:05,200 Speaker 1: in the making. How do you negotiate this? Oh? Look, 55 00:03:05,240 --> 00:03:07,440 Speaker 1: I think that's that's the problem. I mean, in the 56 00:03:07,480 --> 00:03:09,760 Speaker 1: near term, nothing is going to be solved. And we're 57 00:03:09,800 --> 00:03:13,200 Speaker 1: talking next six, twelve, eighteen months. But when we look 58 00:03:13,200 --> 00:03:15,359 Speaker 1: out the next two to three years, which really asked 59 00:03:15,400 --> 00:03:19,520 Speaker 1: to start now, you look at India and Vietnam, those 60 00:03:19,560 --> 00:03:22,720 Speaker 1: are the two most feasible options in terms of where 61 00:03:22,760 --> 00:03:26,680 Speaker 1: they can produce potentially more than fifty iPhone, you know, 62 00:03:26,760 --> 00:03:29,919 Speaker 1: production in those countries, but because of the tentacle is 63 00:03:29,960 --> 00:03:32,600 Speaker 1: also with fox Con as well. But that's when that 64 00:03:32,680 --> 00:03:34,560 Speaker 1: needs to start today. That's why I think they're going 65 00:03:34,600 --> 00:03:39,120 Speaker 1: to much more aggressively shift that production because this cannot 66 00:03:39,120 --> 00:03:42,000 Speaker 1: repeat itself. And I think this has been the nightmare 67 00:03:42,120 --> 00:03:45,560 Speaker 1: situation for Apple and now ultimately the benefits of that 68 00:03:45,600 --> 00:03:48,760 Speaker 1: will be the countries of Indian Vietnam. The part of 69 00:03:48,760 --> 00:03:52,960 Speaker 1: the appeal of producing in China obviously scale keeps costs down. 70 00:03:53,200 --> 00:03:56,160 Speaker 1: If you move production elsewhere, what does that mean for 71 00:03:56,320 --> 00:04:00,360 Speaker 1: costs and a consumers ultimately going to weigh this. Yeah, mean, look, 72 00:04:00,400 --> 00:04:03,120 Speaker 1: I think in the near term that's that's gonna be 73 00:04:03,160 --> 00:04:05,440 Speaker 1: a tough pill to swallow. I mean that the cost 74 00:04:05,920 --> 00:04:09,480 Speaker 1: implications could be significant for Apple in terms of capacs 75 00:04:09,920 --> 00:04:11,600 Speaker 1: and what's going to be need and they're gonna need 76 00:04:11,640 --> 00:04:15,400 Speaker 1: to communicate that to to Wall Street. But you know, 77 00:04:15,520 --> 00:04:19,960 Speaker 1: can they get to scale by two thousand in India 78 00:04:20,440 --> 00:04:23,039 Speaker 1: in Vietnam? I mean, it's it's not going to be 79 00:04:23,120 --> 00:04:26,839 Speaker 1: easy because what they've built an iPhone city is hard 80 00:04:26,880 --> 00:04:29,359 Speaker 1: to replicate, you know, And then you get into the 81 00:04:29,360 --> 00:04:35,120 Speaker 1: world of regulation in India particular, where I think that 82 00:04:35,200 --> 00:04:39,360 Speaker 1: you have to what assemble more than fifty percent of 83 00:04:39,360 --> 00:04:42,040 Speaker 1: of the of the phone there, that's some number like that, Dan, 84 00:04:42,200 --> 00:04:44,480 Speaker 1: help me, I can't recall before you can sell into 85 00:04:44,480 --> 00:04:47,360 Speaker 1: the Indian market. Is there are regulations that they're going 86 00:04:47,400 --> 00:04:51,200 Speaker 1: to encounter in some of these jurisdictions, right, oh, significant ones, 87 00:04:51,279 --> 00:04:53,400 Speaker 1: And that's something These are all things they need to 88 00:04:53,400 --> 00:04:56,920 Speaker 1: work through. It's it's really it's a Rubrik's cube for 89 00:04:56,960 --> 00:04:59,279 Speaker 1: them to figure out. And it's something they never really 90 00:04:59,320 --> 00:05:02,400 Speaker 1: thought they be at this point, especially in two thousand 91 00:05:02,440 --> 00:05:05,520 Speaker 1: and twenty two. But what's happened the last called four 92 00:05:05,560 --> 00:05:09,480 Speaker 1: to six weeks. You know, it's really been a black 93 00:05:09,520 --> 00:05:12,240 Speaker 1: cloud for Apple, and I think it's something that they 94 00:05:12,279 --> 00:05:15,400 Speaker 1: now need to look to diversify for the first time 95 00:05:15,880 --> 00:05:18,400 Speaker 1: really ever, they're going to seriously look to to start 96 00:05:18,440 --> 00:05:21,720 Speaker 1: moving out of China. Well, we've drawn a pretty miserable 97 00:05:21,720 --> 00:05:25,799 Speaker 1: looking roadmap here, but you've still got an outperformer writing 98 00:05:25,960 --> 00:05:29,200 Speaker 1: on Apple took us through your thesis. Well, because just 99 00:05:29,320 --> 00:05:33,359 Speaker 1: demand driven. I mean the demand for iPhones today is 100 00:05:33,440 --> 00:05:37,160 Speaker 1: three to one over supply, so we continue to view 101 00:05:37,200 --> 00:05:40,320 Speaker 1: this in a supply side situation to disaster. But the 102 00:05:40,400 --> 00:05:44,320 Speaker 1: demand is actually as robust as any technology company in 103 00:05:44,320 --> 00:05:47,360 Speaker 1: this environment. That's why I view that they'll be able 104 00:05:47,400 --> 00:05:50,359 Speaker 1: to navigate this. As painful as it is, we have 105 00:05:50,360 --> 00:05:53,000 Speaker 1: a two inine produce target, and that's why I believe 106 00:05:53,120 --> 00:05:56,200 Speaker 1: this is more of just a painful ripped, a band 107 00:05:56,200 --> 00:05:58,440 Speaker 1: aid off situation rather than a time of throwing the 108 00:05:58,520 --> 00:06:02,040 Speaker 1: towel on Apple. Can you mentioned a situation where the 109 00:06:02,120 --> 00:06:07,120 Speaker 1: US becomes a beneficiary in anyway? Do they repatriate any 110 00:06:07,160 --> 00:06:10,839 Speaker 1: type of of production maybe some of the semiconductors that 111 00:06:10,880 --> 00:06:13,840 Speaker 1: get produced here I mean, or maybe there is some 112 00:06:13,960 --> 00:06:18,359 Speaker 1: type of production process that is re short in the US. 113 00:06:18,520 --> 00:06:22,039 Speaker 1: Is that outside the realm of possibility I'd say six 114 00:06:22,080 --> 00:06:25,520 Speaker 1: months ago? Yes, today now, because the Inflation Reduction Act, 115 00:06:25,640 --> 00:06:28,720 Speaker 1: it's the first real legislation coming out of the Beltway 116 00:06:29,160 --> 00:06:31,960 Speaker 1: in probably decades that's actually going to make a dent, 117 00:06:32,120 --> 00:06:35,880 Speaker 1: and I think you're gonna see that to Apple, semiconductor companies, 118 00:06:35,920 --> 00:06:39,560 Speaker 1: even Teslin as well as others potential move more production 119 00:06:39,600 --> 00:06:45,360 Speaker 1: to the US because the tax implications are massive. Okay, Dan, 120 00:06:45,480 --> 00:06:47,599 Speaker 1: good stuff. Always a pleasure. Thank you so much for 121 00:06:47,640 --> 00:06:50,680 Speaker 1: being with us. Dan ives as managing director also senior 122 00:06:50,680 --> 00:06:55,160 Speaker 1: equity analysts at wed Bush Securities on the story of 123 00:06:55,400 --> 00:06:58,400 Speaker 1: apple shifting production outside of China.