Friday, April 3, 2020

Supply Chain Shift Out of China Gaining Steam

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News Analysis

The manufacturing supply chain shifts out of China, which commenced during the U.S.-China trade war, is gaining critical mass amid the coronavirus crisis.

Later this year, U.S. consumers will begin to see Microsoft Surface laptops and Google Pixel smartphones labeled “Made in Vietnam.”

Despite calls by Beijing leadership to restart factories quickly, many production facilities are still lacking upstream supplies or workers as migrants are largely still quarantined due to the coronavirus outbreak. This supply chain constraint is one reason the Dow Jones Industry Average slumped 3,600 points last week, the worst weekly drop since the 2008 financial crisis.

Concurrently, companies are accelerating their efforts to move manufacturing capacity away from China, which has gained increasing urgency since the coronavirus outbreak.

Microsoft will start production of its PC hardware, such as Surface laptops and tablets, in Vietnam as soon as the second quarter, sources with knowledge of the matter told Nikkei Asian Review. “The volume in Vietnam would be small at the beginning, but the output will pick up and this is the direction that Microsoft wants,” sources told Nikkei.

Alphabet Inc. is also set to manufacture the Google Pixel 4A and Pixel 5 smartphones with partners in Vietnam “as soon as April.” The company is shifting production of smart home devices such as the Google Nest Mini from China to Thailand.

Apple is also shifting some production capabilities out of China. Assembly or a portion of its new iPad Pros, AirPods, and Apple Watch will shift from China to Taiwan, according to Taiwan News. Apple is widely expected to launch a new iteration of the iPad Pro in March, and the supply constraints from lowered China production and a partial shift to Taiwan will lower the initial supply of the popular tablet.

Coronavirus Latest Catalyst for Shift

Previously, the hardware manufacturing capacity of all three tech companies rested almost entirely within China, underscoring the huge dependency of U.S. companies on Chinese manufacturing.

But the…

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