Apple’s business is under threat from a widespread coronavirus outbreak in China, with supply chain experts warning of a growing risk of a months-long disruption to iPhone production.
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 a Covid-19 outbreak that started 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. range in the United States, according to a study by the Swiss bank UBS.
As the Chinese government reverses its zero Covid policy, a more lasting 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 transport facilities,” said Bindiya Vakil, managing director of Resilinc, a group based in California that tracks over 3 million components to provide 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 short of the record high of $123.9 billion set in the same period last year, with net profits expected to fall more than 8%. %, according to bank estimates compiled by Visible Alpha. That would break 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 risks to Apple’s revenue for 2023 have risen as modeling showed a million Chinese were at risk of dying from Covid over the coming winter months after President Xi Jinping scrapped strict controls in pandemic case. An Apple store in Beijing’s main shopping district had to cut 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. The Samsung smartphone rival was born in China in 2019 and has diversified its 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 shopping habits. consumption.
“Although the rest of the world saw demand increase during the shutdowns, this was due to working from home and the relaunch,” Dediu said. “With weak 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 nascent Indian businesses.
Prabhu Ram, head of the industry 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 suppliers targeted 18% of assembly. iPhone 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, chairman of State of Flux, a London-based supply chain consultancy that has worked with the UN on corporate standards to respond to Covid.
“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.”
Additional reporting by Ryan McMorrow in Beijing.
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