Google Shifts Pixel Production from China Amid US-China Tensions
Google plans to end production of Pixel hardware in China, while demand for AI infrastructure remains strong, with companies like Quanta and Lite-On increasing capital expenditure to expand capacity
Google has told suppliers it plans to end production in China of all its Pixel hardware next year amid ongoing US-China tensions. This move will make Google the second smartphone company after Samsung Electronics to shift production outside of China.
The decision covers smartphones, smart watches, and wireless earbuds and comes after Google's attempt to develop and mass produce its higher-end Pixel smartphones in Vietnam proved successful. Google also aims to raise Pixel phone shipments by 8% to 10% this year despite skyrocketing prices of memory chips amid a supply crunch.
Pixel shift
Demand for artificial intelligence infrastructure remains strong, according to recent interviews with executives from different sectors and earnings calls by server suppliers like Foxconn, Pegatron, Quanta, and Compal. Quanta, for example, increased its capital expenditure this year to NT$40 billion from a previous plan of NT$30 billion to expand capacity in California, Thailand, and Taiwan.
Bit by bit
The following companies have increased their capital expenditure to expand capacity:
| Company | Capital Expenditure |
|---|---|
| Quanta | NT$40 billion |
| Lite-On Technology | record levels |
| Unimicron | record levels |
| Foxconn | 30% increase from last year's record of NT$173.8 billion |
Such massive capacity expansions have resulted in production equipment becoming a bottleneck, with lead times for tools reaching as long as 30 to 50 weeks. China's export controls on certain raw materials and rare earths, plus increasing prices for already expensive metals, have also complicated the delivery of production equipment.
Open rivalry
The US-China tech war has intensified, with heated debate in Washington over whether and how to restrict Chinese models despite Silicon Valley's pushback. Open-weight AI has become the latest front in the ongoing US-China tech war, with critics raising concerns over potential bias in Chinese open-weight models or "backdoors" that could give the Chinese government covert access.
Material concerns
Beijing is restricting or delaying exports of key aerospace and optical materials to Taiwan, causing supply chain bottlenecks for several industries. The affected materials include germanium- and quartz-based materials, which are critical for lenses used in a wide range of industries like aerospace, defense, and semiconductor manufacturing. China is a key global supplier of such materials and has been weaponizing export controls for these materials amid geopolitical uncertainties.
