With a harsh COVID lockdown and work disruptions at an iPhone factory in China, Apple may be in for some fun this holiday season.
Labor unrest at the Zhengzhou Foxconn factory could slash production of up to six million iPhones just as the holiday season is about to head home, according to a Bloomberg report on Monday.
Foxconn’s situation has been further complicated by protests spreading in China over its zero-Covid policy, resulting in residential lockdowns and business closures in several major cities, including Zhengzhou.
According to guidance from Counterpoint Research, production delays have pushed the delivery time for the iPhone 14 Pro and Pro Max to 37 days. However, the delivery time for the iPhone 14 is three days.
Meanwhile, Wedbush Securities estimates iPhone production is down 5% to 10% during the quarter.
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“If an iPhone 14 Pro model were a holiday gift, you can pretty much write off the holiday at this point,” said Gene Munster, co-founder of Loop Ventures, a venture capital firm in Minneapolis.
“You might get lucky through a carrier. They have some inventory,” he told TechNewsWorld. “It appears that Apple is giving away more inventory to carriers than in its own stores.”
Ross Rubin, principal analyst at Reticle Research, a consumer technology advisory firm in New York City, pointed out that carriers’ iPhone inventory was produced before the problems in China escalated.
“Those problems could have a greater impact on carriers as we head toward Christmas,” Rubin told TechNewsWorld.
Munster said inventory at Apple and other stores may pop up from time to time, but it tends to sell out quickly.
sophisticated supply chain
Tim Bajarin, president of Creative Strategies, a technology advisory firm in San Jose, California, cautioned that Apple has not confirmed whether the current conditions will affect its holiday sales, but acknowledged that sources close to the Foxconn factory are suggesting that there are production problems. facility due to workers’ compensation issues.
“The big problem, though, is the COVID lockdown,” Bajarin told TechNewsWorld. “Taken together, there is a real possibility that Apple will reduce the number of iPhones projected for this quarter.”
Chart courtesy of Counterpoint Research
Mark N., president and principal analyst at SmartTech Research in San Jose, Calif. “Apple has an extraordinarily sophisticated supply chain capability and is undoubtedly factoring the Chinese factory protests into their ability to deliver products before Christmas,” Vena said.
“There will be some impact, although it will vary from product to product. It is quite possible that some popular products – such as AirPods – could see deliveries beyond Christmas,” Vena told TechNewsWorld.
While the iPhone 14 Pro and Max models may be harder to find, other Apple products are not affected. “We’re not seeing any supply chain issues with iPads, watches, or Macs,” Bajarin said.
Although this may change. “Today, the problems affect the iPhone, but because 50% of Apple’s revenue comes from products produced or assembled in China, other products may also be affected,” Munster said.
earnings call hesitates
Apple’s concerns about potential production problems were reflected during its last earnings call when it declined to give clear revenue guidance for the December quarter “due to macro uncertainty”.
“Apple’s performance in any given quarter is tied to the supply they can access. To the extent that these problems affect production, their financial results could be impacted,” Rubin explained.
“The iPhone is the most important product they make from a revenue perspective,” he continued. “In the past, when there was supply-chain disruption, they have played down the hit to their revenue or claimed that they could have done even better if they had been able to use or produce more product.”
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“But they also have a much stronger track record than the industry of ensuring good supply availability,” he added.
Bajarin said that Apple is very concerned about what is happening in China and its impact on its supply chain. “They have already taken strong steps to move parts of their supply chain from China to India and elsewhere,” he added.
“Apple has been working with India for over 10 years, however it is only in the last four years that India has changed some of its policies on foreign investment and foreign controls, allowing Apple to expand there rapidly. permission to do so,” he continued.
He added that Apple is also concerned with President Xi Jinping’s overall approach to China, which is less open to outside markets and more controlled about inside markets, potentially affecting Apple in the long term. .
Apple Diversifying Supply Chain
Bajarin indicated that Apple is working behind the scenes in a number of different ways to diversify its supply chain.
“They haven’t said how aggressive they’re going to be, but we’ve already seen the seeds of that, especially when you look at what they’re doing in India,” he said.
There were also signs of this in 2021, when Apple announced 150 new production locations – 80% outside China.
“I have to believe that Apple has a solid backup plan in the works that is going to allow them to accelerate their detachment from China for at least the next few years,” he added.
A substantial overhaul, however, would take more than a few years, Munster maintained. “It is a slow process. It will take five to 10 years,” he said. “It is a difficult supply chain to rebuild in different countries.”
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Vena predicted that, eventually, 50% of Apple’s production would be pushed outside China. “Taiwan, in particular, is under scrutiny especially because of the threat of an invasion by China, which would be devastating if it happened within the next 12 to 24 months,” he said.
Apple isn’t alone in its desire to reduce production in China. “All the electronics manufacturers that are heavily dependent on China are diversifying,” Rubin said. “Covid restrictions have been a contributor, but there is a larger set of issues including historical barriers to sales, technology sharing requirements and how capitalism reigns.”
Apple did not respond to a request for comment for this story.
