Apple’s business under growing threat from China’s Covid wave

abuse in the foxconn factory
Increase it / ZHENGZHOU, CHINA – A worker wearing personal protective equipment strikes a factory in Industrial Park of Foxconn on November 6, 2022 in Zhengzhou, Henan Province of China.

Apple’s business has been threatened since the outbreak of the coronavirus in China, with supply chain experts warning of an increased risk of months-long shutdowns in the production of iPhones.

The US tech giant has been on lockdown for more than a month at Foxconn’s giant megafactory in Zhengzhou, China, known as “iPhone City,” following the outbreak of Covid-19 that began in October.

Foxconn has moved some of its operations to other factories across China, while Apple has worked with component suppliers to reduce long wait times – as much as 23 days for customers buying the iPhones top in the US, according to research by the Swiss bank UBS.

When the Chinese government changed its non-Covid policy, a long-term problem appeared: the shortage of workers in factories or assembly plants across the country.

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“We have to see many jobs affected by the loss, not only factories, but also warehouse, distribution, installation and transportation facilities,” said Bindiya Vakil, CEO of Resilinc, a group in California that follows more than. 3 million units to provide supply chain mapping services.

Apple warned on November 6 of a “very big” pre-holiday season. The rare news comes less than two weeks after executives forecast a drop in sales growth during the peak Christmas season to below 8 percent.

The consensus among analysts is that the company’s revenue this quarter will fall below the record $123.9 billion achieved in the same period last year, with net profit expected to fall by more than 8 percent, according to bank estimates collected by Visible Alpha. That would shatter a 14-quarter revenue increase as Apple struggles to sell between 5 million and 15 million iPhones.

Many analysts have raised forecasts for the next six months, suggesting that unfulfilled orders will be postponed rather than cancelled.

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But the risks to Apple’s profits for 2023 have increased because the model has shown that 1 million Chinese people are at risk of dying from Covid in the coming winter months after as President Xi Jinping took control of the disease. An Apple store in Beijing’s main shopping district cut hours last week because all of its employees were sick.

A fifth of Apple’s revenue comes from sales in China, as more than 90 percent of iPhones are assembled there. Samsung’s smartphone competition left China in 2019 and has held several events in four countries.

Horace Dediu, an independent analyst at Asymco, a consultancy, said that Apple’s performance and operational problems in recent months are followed by a demand crisis in China as consumers return to spending habits.

“Even the rest of the world saw an increase in demand during the lockdown, due to work-from-home and the stimulus,” said Dediu. “With less risk and less safety nets, Chinese consumers can try and avoid big sales next year.”

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Apple’s most important Taiwanese suppliers including Foxconn, Pegatron and Wistron have responded by seeking to expand their Indian operations.

Prabhu Ram, head of the industry intelligence group at CyberMedia Research in Gurgaon, India, said that an increase of 7-8 percent of iPhones are being assembled in India, and said that the three major suppliers of Taiwan accounts for 18 percent of iPhone assembly in India. in 2024.

China’s attempt to contain the disease, rather than control it, has seen the country’s assembly line up, said Alan Day, chairman of State of Flux, a London-based supply chain consultancy that has worked with and the UN on corporate standards for responding to Covid. breakdown.

“The next two to six months will be a critical time for Apple’s supply chain, given China’s inability to control Covid,” Day said. “The rest of the world has developed standards, but China has almost never been able to get companies to embrace those standards.”

Additional reporting by Ryan McMorrow in Beijing.

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