Apple’s lucrative iPhone business is under growing threat from the massive Covid outbreak in China.
The company has already been contending with problems at the factory with 300,000 workers run by Foxconn – the main assembler of iPhones in Zhengzhou, China – from a wave that began in October.
Experts fear the widespread outbreak, which leaked Chinese health notes say infected 250 million people in December’s first few weeks, could cause months-long disruptions in the production of iPhones – even as the company begins to move some of its production outside of China.
Apple’s lucrative iPhone business is under growing threat from the massive Covid outbreak in China
The California-based company has been working with its suppliers to move some production to other factories in China to alleviate the long wait times impacting consumers in the U.S. for the higher-end iPhone 14 models that it unveiled in September.
Apple took the rare step on Nov. 6 to warn of significant disruption ahead of the holiday season.
In early December, China ordered six million people into lockdown – they were only allowed to leave to buy food or get medical treatment – following protests over Covid restrictions and wages from hundreds of workers in Zhengzhou.
Those protests led to rarely seen viral images of clashes between workers and security personnel holding batons and wearing hazmat suits.
Analysts are estimating that Apple’s revenues will fall this quarter to just below the record $123.9 billion it hit over the same period last year – which would break a revenue growth streak that stretched for 14 quarters – according to the Financial Times.
Horace Dediu, an independent analyst at Asymco, said Apple’s production woes in recent months could be followed by a crisis in demand in China as consumers revamp their spending habits.
‘Though the rest of the world saw demand rise during lockdowns, it was due to work-from-home and stimulus,’ Dediu told the FT. ‘With low immunity and minimal safety nets, Chinese consumers could hunker down and avoid big purchases next year.’
Apple’s supplies in Taiwan, including Foxconn and others, are shifting some production into factories in India, however that effort will take time. One analyst told the FT that 18% of iPhone production could be in India by 2024, up from about 7-8% now.
Apple is hoping, long-term, to ship up to 45 percent of its products from India, according to Ming-chi Kuo, an analyst at TF International Securities.
‘The rest of the world has developed standards, but China has been almost non-existent in getting companies to embrace those standards,’ Alan Day, chair of State of Flux, a London-based supply chain consultancy, told the FT
China’s zero-Covid lockdowns, which were recently lifted, combined with less effective vaccines and lower vaccination rates among parts of the population, have left the country vulnerable and unprepared to accommodate labor shortages.
‘We should be seeing a lot of operations get impacted by absenteeism, not just at factories, but warehouse, distribution, logistic and transportation facilities as well, Bindiya Vakil, chief executive of Resilinc, a California-based group that tracks w wide range of components to provide supply chain mapping services, told the business publication.
‘The next two to six months really will be a defining moment for Apple’s supply chain, because of China’s immaturity of handling Covid,’ Alan Day, chair of State of Flux, a London-based supply chain consultancy, told the FT.
‘The rest of the world has developed standards, but China has been almost non-existent in getting companies to embrace those standards.’
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