Apple to Start Making MacBooks in Vietnam by Mid-2023, Yet Another Blow to China

iPhone maker aims to have 'out of China' production alternatives for key products

· Apple makes between 20 million and 24 million MacBooks annually, with production spread between bases in the Chinese cities of Chengdu, in Sichuan province, and Shanghai.

· Top electronics makers from Apple, HP and Dell, to Google and Meta

· U.S.-bound data center servers made for Google, Meta, Amazon and Microsoft, for example, has moved to Taiwan, Mexico or Thailand.

· In October it announced it had started producing the iPhone 14 in India.

· Apple aims to significantly increase iPhone output from India this year and next, with the aim of turning the country into another key production base for the devices. Apple also aims to move some AirPods and Beats earphone production to India

Apple plans to move some MacBook production to Vietnam for the first-time next year as the U.S. tech group continues diversifying its production base away from China amid escalating tech tensions between Washington and Beijing.

Apple has tapped its top supplier, Taiwan's Foxconn, to start making MacBooks in the Southeast Asian nation as early as around May, sources briefed on the matter said. Apple has been working to add production sites outside of China for all of its major product lines, but doing so for the final one, the MacBook, has taken longer due to the complex supply chain needed for making laptop computers.

"After the MacBook production shifts, all of Apple's flagship products basically will have one more production location beyond China ... iPhones in India and MacBooks, the Apple Watch and iPads in Vietnam," one person with direct knowledge of the matter told Nikkei Asia. "What Apple wants now is an 'out of China' option for at least part of production for all of its products."

The company has been working on plans to move some MacBook manufacturing to Vietnam for nearly two years, and has set up a test production line in the country, Nikkei Asia reported earlier. Apple makes between 20 million and 24 million MacBooks annually, with production spread between bases in the Chinese cities of Chengdu, in Sichuan province, and Shanghai.

The shift to Vietnam comes amid not only rising geopolitical tensions but also production disruptions caused by China's zero-COVID policies and uncertainty from their sudden loosening in recent weeks.

For China, the loss of its lock on MacBook production symbolizes the broader weakening of its position as the world's factory. Top electronics makers from Apple, HP and Dell, to Google and Meta have all made at least some plans to shift production and sourcing away from China since former U.S. President Donald Trump started a tariff war against the country.

Production of most U.S.-bound data center servers made for Google, Meta, Amazon and Microsoft, for example, has moved to Taiwan, Mexico or Thailand.

"Overall, China's benefits in terms of low-cost manufacturing are fading and many U.S. clients now want some production location alternatives outside of China," said an executive at Inventec, a key supplier to HP and Dell. "This is already an accelerating trend for almost all global brands and it will not likely change going forward."

For decades Apple counted China as its most important assembly base, but that winning formula reached a crisis point this year. In the spring, key MacBook and iPhone production sites in Shanghai faced massive disruptions due to a monthslong COVID lockdown. In November, Apple warned of delays in deliveries of its premium iPhone 14 Pro and 14 Pro Max for the holiday season, citing pandemic-related labor shortages at its most important production base in Zhengzhou, Henan province.

Chiu Shih-fang, a supply chain analyst with the Taiwan Institute of Economic Research, says the changes to the tech supply chain are irreversible.

"In the past, most people in the industry always hoped that the situation could ease and things could go back to the good old days," Chiu told Nikkei Asia. "But this time, they realize there is no way of turning back and no matter what they need to prepare alternatives beyond China."

China's strict COVID policies have accelerated the shift, and it is now happening faster than industry executives and market analysts thought a few years ago, Chiu said, adding that intensifying U.S.-China tensions were also playing a role.

"No one wants their businesses to be trapped and hit badly just because their production is too concentrated in one place. From big to small, suppliers now need to have some solutions for facing this new global reality."

Apple's diversification to Vietnam started with AirPods, which went into mass production there in 2020. The company also shifted some iPads and Apple Watch production to the Southeast Asian country this year, Nikkei Asia first reported, and in October it announced it had started producing the iPhone 14 in India, only a few weeks after the release of the latest flagship phone.

Sources have told Nikkei Asia that Apple aims to significantly increase iPhone output from India this year and next, with the aim of turning the country into another key production base for the devices. Apple also aims to move some AirPods and Beats earphone production to India, Nikkei Asia earlier reported.