Apple’s business has been threatened by the coronavirus outbreak in China, with supply chain experts warning that there is an increasing risk of iPhone production being disrupted for months.
The US giant has struggled with more than a month of chaos at Foxconn’s main assembly plant in Zhengzhou, China, following the outbreak of the Covid-19 outbreak that began in October.
Foxconn has moved some production to other factories across China, and Apple has worked with suppliers to ease unusually long wait times — 23 days for customers buying high-end iPhones in the U.S., according to a study by Swiss bank UBS.
As the Chinese government reverses its zero-covid policy, there is now a lingering threat looming: possible labor shortages in factories or assembly plants across the country.
“We’re going to see a lot of jobs hit by absenteeism, not just in factories, but in warehousing, distribution, logistics and transportation facilities,” said Bindia Vakil, CEO of Resilink, a California-based group that oversees more than 3 million people. Components to provide supply chain mapping services.
Apple warned of “significant” disruption ahead of the holiday season on November 6. The unusual announcement came less than two weeks after executives forecast sales growth in the critical Christmas period of less than 8 percent.
The consensus among analysts is that the company’s revenue this quarter will fall below the $123.9 billion recorded in the same period last year and net profit could fall more than 8 percent, according to bank estimates compiled by Visible Alpha. That would shatter 14 quarters of revenue growth, as Apple faced a shortage of between 5 million and 15 million iPhones.
Many analysts initially lifted forecasts for the next six months, assuming that backlogs would be postponed rather than canceled.
But the risks to Apple’s earnings in 2023 have increased, with modeling showing that 1 million Chinese are at risk of dying from Covid-19 in the coming winter months after President Xi Jinping eases strict pandemic controls. An Apple store in Beijing’s main shopping district had to cut hours last week because all its employees were sick.
A fifth of Apple’s revenue comes from sales in China, where more than 90 percent of iPhones are assembled. Smartphone rival Samsung in 2010 In 2019, he left China and held various meetings in at least four countries.
Horace DeDieu, an independent analyst at consulting firm Asimco, said Apple’s production and operational problems could be followed by a demand crisis in China in the coming months, as consumers recalibrate their spending habits.
“While the rest of the world has seen an increase in demand during the lockdown, it is due to work-from-home and stimulus,” Dediu said. With low immunity and small safety nets, Chinese consumers can hunt and avoid big purchases next year.
Apple’s most important Taiwanese suppliers, including Foxconn, Pegatron and Wistro, have responded by looking to expand their Indian operations.
Prabhu Ram, head of the industry intelligence group at Cyber Media Research in Gurgaon, India, estimated that 7-8 percent of iPhones are being assembled in India, and predicted that the three Taiwanese suppliers were targeting 18 percent of iPhone assembly. in India by 2024
China’s attempt to eradicate rather than control the disease has exposed the country’s assembly lines, said Alan Day, chairman of Flux State in London, which has been working with the United Nations on corporate standards for the response to Covid. Epidemics.
“The next two to six months will be a critical period for Apple’s supply chain because of China’s lack of maturity to manage Covid,” Day said. “The rest of the world has set standards, but China has been almost non-existent in getting companies to adopt those standards.”
Additional reporting by Ryan McMorrow in China