As Covid cases continue to rise in China, many big tech vendors are having to close their factories or restrict the movement of their workers, which could be a huge headache for Apple this year, as around half of its Chinese suppliers are in and around the worst-hit region of the country.
A new analysis conducted by Nikkei Asia has revealed that half of Apple’s top 200 suppliers are in or around the city of Shanghai, which is currently in the midst of a week-long lockdown under the direction of the Chinese government.
Shanghai is currently grappling with one of the largest increases in Covid cases China has seen since the Covid outbreak began in 2019. Under China’s official “Zero Covid” policy, anyone tested positive for Covid is forced into solitary confinement in an effort to eliminate community transmission of the coronavirus which causes the disease.
This worries many industry executives and analysts, as the number of factories closed or operating at reduced capacity could quickly exacerbate the supply chain crisis that is driving shortages and price inflation around the world.
Chinese officials are not oblivious to this threat, and this week factories were told they could begin to reopen under a closed-loop production model, where factory workers remain isolated and do not interact with the surrounding community. According to the Guardian, workers at the Tesla factory, for example, were told they should sleep there rather than go home when their day was done.
TechRadar has reached out to Apple for comment on the Shanghai situation and supply chain issues and will update this story if and when we hear from the company.
Apple’s supply chain has been resilient, but can it keep going?
While Apple isn’t the only major tech company impacted by factory closures in and around Shanghai, the fact that so many of its key suppliers are located there could be particularly problematic.
Nikkei Asia reports that more than 70 of Apple’s suppliers have factories in neighboring Jiangsu province and most of them are in Kunshan and Suzhou, two cities geographically close to Shanghai. Another 30 suppliers are located in Shanghai itself and, taken together, supply everything from printed circuit boards to batteries to major product assemblers like Pegatron.
“We believe the impact is much more severe than last year’s power outage as it involves a wide range of supply chains,” said display supplier AU Optronics president Paul Peng. speaking of energy consumption cuts imposed by the Chinese government in September 2021. “The disruption is not about a single company or industry, it is a global supply chain incident that could lead to a power outage. supply chain in the worst case.”
Assuming production restarts in and around Shanghai without issue – a big if, given the amount of Covid transmission in the region – it will still take time to restart production lines and get them running at full capacity.
What is worse is the timing of the disturbance. It takes months for products like MacBooks and iPhones to be produced, tested, packaged and shipped overseas to global markets in Europe and North America. Products that are expected to hit store shelves during the November and December holiday season would typically begin manufacturing within the next few weeks. Disruption at this point in the cycle could lead to missing targets for the end of 2022.
“May and June will be critical for many consumer electronics brand suppliers,” an executive at an HP supplier told Nikkei Asia. “If production does not increase in time for goods to be shipped by ocean freight, there is a chance that they will miss the Christmas sales season in Europe and the United States due to port congestion – unless than they ship by air, which is much more expensive.”
If Apple’s suppliers can resume production on time and ship their products on schedule, it could not only threaten holiday season inventory, but it could potentially threaten product launches that are expected to take place later this year. , especially the new iPhone 14 and MacBook Air, which are the company’s main flagships.