Apple plans to start trial production of its popular AirPods wireless earphones in Vietnam as it seeks to diversify manufacture beyond China, Nikkei Asian Review has reported.
China's GoerTek, one of Apple's key contract manufacturers, will this summer begin testing the resilience of its manufacturing processes for the newest generation of AirPods at its audio factory in northern Vietnam, two sources with knowledge of the plan said.
This will mark the first production of the wireless earbuds outside China.
Apple has written to components suppliers to ask them to support Goertek's efforts despite initially very small volumes. Suppliers are requested to keep the pricing unchanged for the trial production stage, according to a communication seen by the Nikkei Asian Review.
"The initial output will be limited, but it is easy to increase capacity once all the manufacturing procedures are running smoothly," a source said.
Apple has long sourced its traditional EarPods in Vietnam. However, until now, AirPods have been made in China by suppliers Inventec, Luxshare-ICT, and GoerTek.
The earbuds came to market in 2016 and are Apple's fastest growing product, with 35 million units sold last year versus 20 million in 2017. The strong growth momentum gives Apple the chance to accelerate diversification of production outside of China without necessarily reducing volumes there.
"It’s very likely that Apple will adopt the “China plus one” strategy when it comes to diversification efforts," said Chiu Shih-fang, a supply chain analyst at Taiwan Institute of Economic Research. That meant the company would increase production in countries outside China without reducing Chinese volume significantly at the start.
China's low birthrate, rising labor costs, and the protracted trade tensions between Washington and Beijing have prompted Apple to review its reliance on Chinese factories.
Vietnam has emerged as a powerful alternative, thanks to the geographical proximity to China that benefits logistics, and to its lower cost, but highly skilled labor. However, with just 95 million people, Vietnam's workforce is limited and there are already signs of potential labor shortages and rising wage costs as many companies move there to escape the fallout from US-China trade tensions.