We have achieved a situation where 1+1 equals not 2, but 3.
In 2023, Apple CEO Tim Cook said this at an event held in China. This means that Apple has built a strong partnership with local corporations in China for a long time, creating productivity beyond the imagination of other smartphone corporations. It also suggests how important China has been as a tool and weapon in Apple's success story since it launched the iPhone series in the early 2010s.
What is the real secret behind Apple making 1+1 equal 3? What kind of 'magic' did CEO Cook use to maintain profit margins exceeding double that of competitors, which record operating margins of 10-15%, for over a decade?
◇ Behind Apple's magic lies a 'cheat' only possible in China
As President Donald Trump's reign was marked by escalating the tariff war and technology leakage issues between the U.S. and China, the true nature of how Apple's magic has been achieved is gradually becoming clear. Trying to impose tariff barriers on Chinese products, President Trump is pressuring Apple to establish production bases in the U.S. or other countries instead of China. Perhaps it may seem easy to Trump if he views China merely as an assembly base for the iPhone.
Delving into the reality, China is not just a good partner for Apple; it is an indispensable core component that is organically integrated with Apple. While some in the industry regard Apple as one of the main players in the growth of China's electronics, IT, and component businesses over the past 10 years, the same applies to Apple. It’s not just about China's cheap labor. China is the only country capable of the magic, or rather 'cheating', of replicating advanced technology components from around the world at low prices.
Indeed, Apple's '1+1=3' magic is a kind of cheating that would not hold true outside of China. This mathematically nonsensical formula is fundamentally rooted in Apple’s supply chain operations. By adopting the technologies of component and material companies in the U.S., Korea, Japan, and others, and leaking the 'recipe' to partners in China, Taiwan, and Hong Kong to incite competition, Apple has managed to lower component costs.
A representative from a domestic display company noted that 'Apple owns the entire manufacturing process of products through contracts with suppliers, which includes all details from tools to polishing.' Earlier, the IT media outlet The Information revealed through multiple Apple employees that 'China's BOE has been helped to produce displays at a level corresponding to the quality of OLED panels produced by Samsung Display for several years,' and that 'through this, Apple pressured Samsung Display to lower the panel supply prices.'
The damage is not limited to Korean corporations. Japanese company Sony also exclusively supplied displays for Apple's Vision Pro headset, but Apple is suspected of having transferred Sony's know-how to a display company called China Vision Technology. According to reports, Apple is inciting competition between Vision Technology and Sony to lower the price range of the Vision Pro. Similar attempts to reduce costs are being made for other components and materials, including display and image sensors.
◇ China, now an enemy of the U.S., puts Apple in a bind
For Apple, China is not just a production base but a space that provides an ecosystem where cheating is possible. This is also the biggest reason why moving production bases to the U.S., India, or Vietnam is impossible. Moreover, the skilled Chinese engineers cultivated over the past decade have become significant assets for manufacturing Apple's hardware. Recently, as Foxconn repositioned Indian personnel back to China, the urgency of Apple's Indian production line has come into play.
Domestic parts companies, which had only been on the receiving end for over 10 years, are beginning to stand up one by one. Samsung Display filed a lawsuit against BOE for OLED patent infringement with the U.S. International Trade Commission (ITC) in 2022. After a prolonged legal battle, the ITC sided with Samsung in March. Subsequently, Samsung Display filed another lawsuit against BOE and its subsidiaries in April in the U.S. Eastern District Court of Texas for illegal hiring of core personnel related to OLED and theft of trade secrets.
A representative from the display industry stated that 'Samsung Display's victory over BOE at the ITC has symbolic significance,' adding that 'it suggests that the intentional technology leak that had been raised long ago by former and current Apple officials is essentially illegal, and it indicates that Apple's strategy of leveraging Chinese companies for 'price-cutting' is not sustainable amid the intensifying U.S. government scrutiny of China.'