Apple's Chinese arm under serious threat as production may get disrupted for months because of COVID

Apple’s Chinese business is under serious threat from a widespread outbreak of the Coronavirus. Experts claim that this time around, if the supply chain gets disrupted like it did the last time, the compounded effect will be so hard that it may months to get back to normal, if not years.

Apple has already suffered a massive setback this year, as their main production facility, Foxconn’s mega factory in Zhengzhou was engulfed in chaos, following a Covid-19 outbreak that started in October.

As the Chinese government reverses its zero-Covid policy, factories and workshops across China will potentially see massive worker shortages, as more and more get hospitalised or quarantined.  

Foxconn has already started reallocating resources to some of its smaller production facilities in China, whereas Apple is working with its component suppliers to reallocate resources to factories in other countries.

Apple already had to let go of their sales target that they had for the holiday season this year as the Chinese Foxconn factories were overwhelmed with the demand for the new iPhone 14 Pro and a few older models, which was only made worse because of the COVID outbreak and shortage of key components. Apple had about 20 per cent fewer iPhone 14 Pros to sell this holiday season than they had anticipated. All things considered, Apple had about 15 million fewer iPhones to sell this holiday season.  

The consensus among analysts is that company revenues this quarter will fall just below the record $123.9 billion it achieved over the same period last year, with net profits projected to tumble more than 8 per cent. This would be the first time in 14 quarters that Apple has failed to register growth.

A fifth of Apple’s revenue comes from sales in China, while more than 90 per cent of iPhones are assembled there. As a result, the risk to Apple’s revenue projection for 2023 has increased substantially, as projections have predicted that over 1 million Chinese people are at the risk of dying from COVID.  

Apple’s main rival Samsung exited China in 2019 and has diversified its assembly in at least four countries.

As a result of all this, Apple’s major suppliers and manufacturers, Foxconn, Pegatron and Wistron are turning to India, and hope to rapidly expand their operations in the country. A report by CyberMedia Research estimates that India assembles about 7-8 per cent of all iPhones being sold. Apple’s Taiwanese partners want this number to go up to 18 per cent by the end of 2024 and to 25 per cent by 2025.