China is a popular choice for technology companies because of its lower labour costs.
This is the common perception, or perhaps “misconception”, as Tim Cook, chief executive of Apple Inc. (NASDAQ:AAPL) would call it.
In an interview he gave last year, he revealed that “China ceased to be the low-cost country many years ago.”
The multinational continues to assemble 90% of its flagship smartphone models in China.
What is it that has driven AAPL to become the second largest economy in the world for iPhone production, if not the lower costs?
Why does Apple rely on China to produce iPhones?
Apple relies heavily on China to produce iPhones, primarily because of the large number of skilled workers in one location.
Working with advanced tools, and materials that require precision, and using state-of-the art techniques is required to make an iPhone.
Tim Cook, Apple CEO, says Beijing is a great place to start.
I don’t think we could fill a room of tooling engineers in the US.
In China, you can fill up multiple football fields. China has a very high level of expertise in the field of vocational training.
Cook’s remarks call into question the US’ ability to replace China as the global manufacturing hub, something that the Trump administration has been pushing by 2025.
AAPL received a reprieve recently from the White House
Apple shares opened this morning in the green after US President Trump agreed that smartphones, computers, other electronic devices, and tariffs would be exempted.
The announcement is a temporary relief for AAPL as it relies heavily on China to produce iPhones.
If the President had not changed his mind, higher tariffs could have increased the cost of an iPhone.
The flagship smartphone could cost up to $3,500, if it was produced in the US.
AAPL is still down almost 20% from its high for the year.
Does it make sense to own Apple stock at the current price?
David Vogt, UBS analyst, has not yet turned his back on Apple because of the tariff tantrums or the possible trade war that could follow.
Vogt rates AAPL’s shares as “neutral”. In a research note published today, he reiterated the price target of $236 for the tech stock, which represents a potential 15% upside from current levels.
According to UBS analyst, temporary relief on reduced tariffs for tech imports, and the company’s financial strength, including a gross profit margin of 46.5%, offer some protection from the changing trade environment.
Apple stock pays a dividend yield at the time of writing of 0.49%, making it more attractive at its current price.
This post Apple doesn’t manufacture iPhone in China because of lower labour costs: Tim Cook reveals real reason appeared first at The COINPAPER
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