Google Is Going To Move All Pixel Production Out Of China Into This Country
Google (NASDAQ:GOOGL) is moving "aggressively" to move production of its Pixel family of smartphones away from their current location in China. A Nikkei report earlier this morning seems to have credible sources pointing to the destination: Vietnam.
By now most of our readers probably won't even bother to ask the question "why?". We've long been covering the development of import taxes the current U.S. administration has decided to impose on almost all products that originate in China. Google, like others, is taking matters into its own hands to find a risk-free and long-term solution to fight the current trade barriers in place between the world's two largest markets.
Vietnam: Where Google can produce its most important devices for the lowest cost
Google has high hopes for its Pixel brand. The lineup of smartphones is billed as offering the purest and cleanest mobile Android experience in the world. With these devices, Google can implement an Apple-esque level of integration between its hardware and software. With the recent release of the affordable Pixel 3a, its sales numbers seem to be picking up speed at a fairly rapid pace, too.
Last year the company shipped about 4.7 million Pixel units, and this year Google came close to that mark in the first half alone, at 4.1 million phones thanks in large part to new affordable entries like the aforementioned 3a.
With 10 million units getting sold this year set as a very realistic goal, and 70% of those sales coming from within the U.S. it becomes quite clear why Google can't continue to risk getting slapped with 25% import taxes without doing anything.
Beyond tariffs, China is no longer the poster child for cheap labor as it may have been in the 1990s. The country has a burgeoning middle class and, for a multitude of reasons, can no longer supply the cheap labor that it once did. Any company attempting to build products in China and sell them in the U.S. is faced with both permanent wage costs increases and the ever-present threat of additional tariffs.
So now the company is taking a page out of supply chain 101, and it's finding a lower cost and risk-free alternative to China, in this case, Vietnam. The answer seems to be an old Nokia factory in the Vietnamese province of Bac Ninh, and Google has been working with 3rd parties to recondition and ready the plant for its manufacturing needs.
The move seems to mirror what Apple is attempting to be doing, as many reports have surfaced in recent months pointing to the Cupertino-based iPhone maker shifting its massive supply lines into that country as well.
However, Google has a major advantage here in that it simply doesn't need anything approaching the scale of Apple's (Foxconn's) supply chains which makes it much easier to perform an agile pivot like this. Apple is faced with a much more difficult task as its an order of magnitude larger in terms of scale.
Expect this story to repeat itself with other companies. HP (NYSE:HPQ) and Dell (NYSE:DELL) have already completed moves to take production out of China and start-up elsewhere in countries like Vietnam and Taiwan.
While you won't see Pixel 4's shipping out of Vietnam, next year's inevitable Pixel 5, or perhaps a potential Pixel 4a might ship out of Northern Vietnam in the very near future.