Apple's business under growing threat from China's Covid wave
Apple's business under growing threat from China's Covid wave
Enlarge / ZHENGZHOU, CHINA - A staff member wearing personal protective equipment disinfects a factory at Foxconn's industrial park on November 6, 2022 in Zhengzhou, China's Henan province.
VCG via Getty Images
Apple's business is at risk from a widespread coronavirus outbreak in China, with supply chain experts warning of a growing risk of iPhone production halting for months .
The US tech giant has faced more than a month of chaos at its main assembler Foxconn's mega-factory in Zhengzhou, China, known as "iPhone City", following from a Covid-19 outbreak that began in October.
Foxconn has moved some of its production to other factories across China, while Apple has worked with component suppliers to reduce unusually long wait times: around 23 days for customers buying High-end iPhones in the United States, according to a study by a Swiss bank. UBS.
As the Chinese government reverses its zero Covid policy, a longer-term risk now looms: the potential for labor shortages at component factories or assembly plants across the country .
“We should see many operations affected by absenteeism, not just in factories, but also in warehouses, distribution, logistics and transportation facilities,” said Bindiya Vakil, Managing Director of Resilinc, a California-based group that tracks over 3 million components to provide supply chain mapping services.
Apple warned Nov. 6 of "significant" disruption ahead of the holiday season. The rare statement came less than two weeks after executives forecast moderate sales growth in the crucial period around Christmas of less than 8%.
The consensus among analysts is that the company's revenue this quarter will fall just below the record high of $123.9 billion set in the same period last year, with net profits expected to fall by more than 8%, according to bank estimates compiled by Visible Alpha. This would end a 14-quarter revenue growth streak as Apple experiences a shortage of 5-15 million iPhones.
Many analysts had initially raised their forecasts for the next six months, assuming unfulfilled orders would be postponed rather than cancelled.
But the risks to Apple's 2023 revenue have increased as modeling showed one million Chinese were at risk of dying from Covid over the coming winter months after President Xi Jinping cut strict controls in the event of a pandemic. An Apple store in Beijing's main shopping district had to reduce hours last week because all of its employees were sick.
A fifth of Apple's revenue comes from sales in China, while more than 90% of iPhones are assembled there. Smartphone rival Samsung exited China in 2019 and diversified assembly into at least four countries.
Horace Dediu, an independent analyst at Asymco, a consultancy, said Apple's production and operating problems in recent months could be followed by a demand crisis in China as consumers redefine their consumption habits.
“Although the rest of the world saw demand increase during the shutdowns, this was due to working from home and stimulus measures,” Dediu said. "With low immunity and minimal safety nets, Chinese consumers could hide and avoid big purchases next year."
Apple's most important Taiwanese suppliers, including Foxconn, Pegatron and Wistron, have responded by seeking to expand their fledgling operations in India.
Prabhu Ram, head of the industrial intelligence group at CyberMedia Research in Gurgaon, India, estimated that more than 7-8% of iPhones are assembled in India, and predicted that the big three Taiwanese vendors were targeting 18% of iPhone assembly to be in India by 2024.
China's attempt to eradicate the disease rather than manage it has left the country's assembly lines exposed, said Alan Day, president of State of Flux, a supply chain consultancy based in China. London working with the UN on corporate standards to respond to Covid outbreaks.
"The next two to six months will really be a defining moment for Apple's supply chain, due to China's immaturity in handling Covid," Day said. "The rest of the world has developed standards, but China has been almost non-existent in getting companies to adopt those standards."
Enlarge / ZHENGZHOU, CHINA - A staff member wearing personal protective equipment disinfects a factory at Foxconn's industrial park on November 6, 2022 in Zhengzhou, China's Henan province.
VCG via Getty Images
Apple's business is at risk from a widespread coronavirus outbreak in China, with supply chain experts warning of a growing risk of iPhone production halting for months .
The US tech giant has faced more than a month of chaos at its main assembler Foxconn's mega-factory in Zhengzhou, China, known as "iPhone City", following from a Covid-19 outbreak that began in October.
Foxconn has moved some of its production to other factories across China, while Apple has worked with component suppliers to reduce unusually long wait times: around 23 days for customers buying High-end iPhones in the United States, according to a study by a Swiss bank. UBS.
As the Chinese government reverses its zero Covid policy, a longer-term risk now looms: the potential for labor shortages at component factories or assembly plants across the country .
“We should see many operations affected by absenteeism, not just in factories, but also in warehouses, distribution, logistics and transportation facilities,” said Bindiya Vakil, Managing Director of Resilinc, a California-based group that tracks over 3 million components to provide supply chain mapping services.
Apple warned Nov. 6 of "significant" disruption ahead of the holiday season. The rare statement came less than two weeks after executives forecast moderate sales growth in the crucial period around Christmas of less than 8%.
The consensus among analysts is that the company's revenue this quarter will fall just below the record high of $123.9 billion set in the same period last year, with net profits expected to fall by more than 8%, according to bank estimates compiled by Visible Alpha. This would end a 14-quarter revenue growth streak as Apple experiences a shortage of 5-15 million iPhones.
Many analysts had initially raised their forecasts for the next six months, assuming unfulfilled orders would be postponed rather than cancelled.
But the risks to Apple's 2023 revenue have increased as modeling showed one million Chinese were at risk of dying from Covid over the coming winter months after President Xi Jinping cut strict controls in the event of a pandemic. An Apple store in Beijing's main shopping district had to reduce hours last week because all of its employees were sick.
A fifth of Apple's revenue comes from sales in China, while more than 90% of iPhones are assembled there. Smartphone rival Samsung exited China in 2019 and diversified assembly into at least four countries.
Horace Dediu, an independent analyst at Asymco, a consultancy, said Apple's production and operating problems in recent months could be followed by a demand crisis in China as consumers redefine their consumption habits.
“Although the rest of the world saw demand increase during the shutdowns, this was due to working from home and stimulus measures,” Dediu said. "With low immunity and minimal safety nets, Chinese consumers could hide and avoid big purchases next year."
Apple's most important Taiwanese suppliers, including Foxconn, Pegatron and Wistron, have responded by seeking to expand their fledgling operations in India.
Prabhu Ram, head of the industrial intelligence group at CyberMedia Research in Gurgaon, India, estimated that more than 7-8% of iPhones are assembled in India, and predicted that the big three Taiwanese vendors were targeting 18% of iPhone assembly to be in India by 2024.
China's attempt to eradicate the disease rather than manage it has left the country's assembly lines exposed, said Alan Day, president of State of Flux, a supply chain consultancy based in China. London working with the UN on corporate standards to respond to Covid outbreaks.
"The next two to six months will really be a defining moment for Apple's supply chain, due to China's immaturity in handling Covid," Day said. "The rest of the world has developed standards, but China has been almost non-existent in getting companies to adopt those standards."
Enlarge / ZHENGZHOU, CHINA - A staff member wearing personal protective equipment disinfects a factory at Foxconn's industrial park on November 6, 2022 in Zhengzhou, China's Henan province.
VCG via Getty Images
