Device Manufacturers Grow Investments in Chinese Alternatives and Semiconductors Get Domestic Funding Boost; Opportunities Arise as Supply Chains Shift

By Ryan Wiggin | 2Q 2024 | IN-7311

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In the last fiscal year, Apple assembled US$14 billion of iPhones in India, doubling its production in the country. Apple now produces roughly 14% of its devices in India. The growth of production in India has come as part of Apple's broader move away from China, aiming to reduce its dependence on the country. The move has been happening for a few years, with the company's supplier list released each fiscal year, with fewer mentions of China, and more mentions of countries like India, Vietnam, Taiwan, and Japan.

Other electronics companies, including Samsung, LG, Intel, and Dell, have made, or plan to make the same diversification moves. Between 2022 and 2023, Samsung decreased its share of suppliers in China from 7.8% to 7.1%, and Dell plans to stop sourcing all chips used in its products from China by the end of 2024.

For companies like Apple that contract out the majority of their manufacturing, holding a high proportion of this in one country takes away a high degree of control and increases risk. Any changes in labor or political moves of that country can have a compounding effect. Splitting up the manufacturing base helps cushion any supply impacts and can allow companies to become more agile in their product supply.

Another reason behind the shift comes down to cost incentives. Countries like India and Vietnam have plied electronics firms with financial incentives as a way of attracting high-end manufacturing, such as reducing corporate tax rates to as low as 10% to 15% in comparison to China's 25% tax rate.

It is also important to consider the markets that companies like Apple are targeting, and how the distribution of device manufacturing can support go-to-market. As the second largest smartphone market and one that is forecast to grow considerably in the coming years, India holds significant market potential for Western smartphone vendors that are currently dominated by Chinese vendors such as OPPO and Xiaomi.

Such diversification is creating a dual trend in the electronics supply chain, as Western countries are also pushing heavily to bring semiconductor manufacturing onshore. In 2023, the European Chips Act came into force, mobilizing more than €43 billion of public and private investments to support technological capacity and production. In the United States, the Biden administration recently awarded TSMC US$11.6 billion in loans and grants to build a third factory in Phoenix, Arizona, with the first two expected to begin production in 2025 and 2028. Supporting this onshoring move, suppliers and subcontractors to these companies have also announced new or expanded U.S. plants, including Absolics Inc., Entegris, and Applied Materials.

Through our reporting, ABI Research has long talked about the needs for diversification in global supply chains as the most fundamental way to reduce the impact of adverse events. But changing where products are manufactured is only one side of the coin. The route to market is another area that requires continuous review. As discussed in A previous ABI Insight, "Red Sea Attacks: Another Disruption Calling for Inbound Supply Chain Diversification," diversifying inbound supply chains through analysis of multimodal capabilities and risk assessments should be of equal importance to the multinational companies diversifying their manufacturing.

Another factor to consider for both electronics companies and solutions providers is the growing regulation around circular production. The Ecodesign for Sustainable Products Regulation (ESPR) is one example of this, allowing for the setting of a wide range of requirements on products including materials that inhibit circularity and the use of recycled content. Leading electronics companies, including Samsung, Dell, and Sony, are ramping up their use of recycled materials in new products, recognized by the Environmental Protection Agency (EPA) in its Sustainable Materials Management (SMM) awards.

Circularity requires effective reverse logistics, and with the growing requirements on product reporting, also requires effective end-to-end asset tracking. Therein lies a significant market potential for not only asset tracking solutions, but also distribution and production software that can capture both upstream and downstream product flows. Given the potential for product circularity, ABI Research forecasts that the electronics industry will lead investment in product tracking and reverse logistics management over the short to medium term, creating an opportunity for tracking solutions and last-mile logistics providers to support the collection, delivery, and redistribution of goods heading back up the supply chain.