As covid cases continue to rise in China, many of the major tech providers are having to close their factories or restrict the movement of their workers, something that could be a huge headache for Apple this year as roughly the half of its Chinese suppliers are in and around the country. most affected region of the country.
A new analysis by Nikkei Asia found 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 ordered by the Chinese government.
Shanghai is currently struggling with one of the largest increases in covid cases China has seen since the start of the covid epidemic in 2019. Under China’s official “Covid zero” policy, anyone who tests positive for covid is forced to self-isolate in an effort to eliminate community transmission of the coronavirus that causes the disease.
This worries many industry leaders and analysts, as the number of factories that have been closed or operated at reduced capacity could quickly exacerbate the supply chain crisis that is producing shortages and price inflation around the world.
Chinese officials are no stranger to this threat, and factories were told this week that they could begin reopening 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 to sleep on site rather than go home after their day was done.
TechRadar has reached out to Apple for comment on the situation in Shanghai and related supply chain concerns and will update this story when we hear from the company.
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While Apple isn’t the only major tech company affected by factory closures in and around Shanghai, the fact that so many of its major suppliers are there could be especially 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 based in Shanghai, collectively supplying everything from printed circuit boards to batteries, including 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 the supply chain,” said Paul Peng, president of display supplier AU Optronics, speaking of the forced reductions in the energy consumption mandated by the Chinese government in September 2021. “The outage is not for a single company or industry, it is a global supply chain incident that could lead to a worst-case supply chain outage.” cases”.
Assuming production restarts in Shanghai and surrounding areas without a hitch, 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 moment of interruption. It takes months for products like MacBooks and iPhones to be produced, tested, packaged and shipped overseas to the global markets of Europe and North America. Products that should be hitting store shelves during the November and December holiday season would typically start manufacturing in the next few weeks. Disruption at this point in the cycle could lead to missing targets by the end of 2022.
“May and June will be crucial for many suppliers of consumer electronics brands,” an HP supplier executive told Nikkei Asia. “If production doesn’t ramp up in time for products to be shipped by sea, there is a chance they could miss out on the holiday sales season in Europe and the US due to congestion at ports, unless they are shipped by air, which is much more expensive.”
The fact that Apple’s suppliers are able to resume production on time and ship their products on time could not only threaten holiday season inventories, but could also threaten product launches expected later this year, in particularly the new iPhone 14 and the MacBook Air, both of which are the company’s main flagship products.