Since a new outbreak of Covid-19 originated in the facilities of foxconn, in the Chinese town of Zhengzhou, last October, Apple’s production level has been reduced. The ‘iPhoneCity’as this region that is home to the company’s main assembler is known, is in utter chaos.
All this has raised alerts in the company that sees a latent risk that its production will be interrupted in the coming months. Foxconn has decided to move part of its production to other factories in China, while Apple has chosen to look for new suppliers to alleviate the waiting times for its supplies. In fact, those who buy a high-end iPhone in the US may currently be expecting a few 23 daysan excessively long time for what the technological giant has accustomed us to.
The zero covid policy Implemented by the government of Xi Jinping, it is causing the presence of workers in factories throughout the country to be less and less, obviously affecting the producers of components and the architects of the iPhones assemblies.
Absenteeism is having a negative impact on storage, distribution, logistics and transport, that is, at all key points in the supply chain. Without going any further, an Apple store in Beijing had to reduce its opening hours during the past week because all its workers were sick.
A ‘black Christmas’ for Apple
Since November, this debacle has been predicted in the Christmas season, the one that generates the highest revenue rate for Apple. However, the experts determined that on these dates the company it would barely improve its data by 8%insignificant figures compared to what we are used to.
Thus, all studies indicate that Apple’s revenue will be below 123.900 million dollars purchased over Christmas 2021, and that net earnings will experience a decline of more than 8%. This is reflected in the latest bank estimate of Visible Alpha. Right now they would be producing between 5 and 15 million less than the iPhones needed to meet global demand, so it is impossible to remedy the break in the upward trend in terms of economic growth experienced during the last 14 quarters.
What will happen in 2023?
The future is not shown with more light. Demographic data shows that more than a million Chinese citizens are at risk of dying from Covid during the winter months, once the strict pandemic controls.
If we take into account that one fifth of Apple’s revenues come from sales in China and that more than 90% of iPhones are assembled therethe widespread concern that exists in the company is normal.
Added to this is the tension due to the exponential growth of competition, since samsung it left the country in 2019 to diversify its production and assembly in up to four countries.
If the pandemic continues in this ascending line in China, the mentality of the citizens will be affected and they will implement a ‘zero spending policy’, where expenses will be prioritized again and where large purchases will be avoided. Unlike what happened in Europe during the spring of 2020, in China this low immunity and lack of confidence in security networks could cause a plummet in sales of the technology sector.
Although it cannot heal the wounds, Apple can act immediately to prevent the problem from escalating. For all these reasons, its most important Taiwanese suppliers (foxconn, pegatron Y wintron) are expanding their operations in India.
Hence, the assembly of 7-8% of iPhone in India is passed to 18% for 2024. Until June Apple will have to analyze how the production lines and the market evolve and if China’s political measures continue to seriously affect their supply chains.
And it is that unlike the decisions that are being made in other parts of the world, the Asian country continues to be reluctant to implement new standards against Covid.
