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Apple Analyst: Shift Away From Chinese Production Would Be 'Gargantuan Endeavor'

Jayson Derrick

Nikkei Asian Review reported Wednesday that Apple Inc. (NASDAQ: AAPL) is considering shifting 15% to 30% of its production capacity from China to elsewhere in Asia.

This move would be complex and take several years to complete, according to Wedbush.

The Analyst

Daniel Ives maintained an Outperform rating on Apple with an unchanged $235 price target.

The Thesis

Apple's existing manufacturing footprint in China represents the "hearts and lungs" of its entire ecosystem, Ives said in a Wednesday note. (See his track record here.) 

Moving just 15% of iPhone production to other regions in Asia would take at least two to three years given the "complexity and logistics involved in such a gargantuan endeavor," the analyst said. 

Any expectations for an "overnight" large-scale shift away from China are unrealistic, Ives said, adding that Apple could realistically reallocate 5% to 7% of its iPhone production to India within the next 18 months.

In the meantime, Apple is stuck in the middle of a "poker game" involving the Trump administration and the ruling party in China, in the Wedbush analyst's view.

"The jury is still out on the time table on these strategic moves for Apple, but ultimately with 1.4 million Chinese employed by the company, Cook and Cupertino have some big decisions ahead on the China front with both Beijing and D.C. closely watching these developments over the coming months," Ives said. 

Price Action

Apple shares were down 0.2% at $198.06 at the time of publication Wednesday. 

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Photo courtesy of Apple. 

Latest Ratings for AAPL

Date Firm Action From To
Jun 2019 Initiates Coverage On Outperform
Jun 2019 Maintains Buy
May 2019 Maintains Overweight

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