Apple’s Chinese woes: Cook blames pandemic controls, supply chain disruptions for revenue drop

Despite being one of the best-selling phones across the world and in China last year, Apple missed their revenue projections for the final quarter of 2022 by a considerable margin. In fact, Apple’s quarterly revenue for the last quarter of the year was the lowest in four years in 2022.

Apple CEO Tim Cook said that manufacturing disruptions in November and December contributed to the company’s first quarterly revenue decline, in an apparent reference to unrest at the world’s largest iPhone factory in central China late last year in response to Beijing’s strict pandemic restrictions.

“Challenges arising from Covid-19 restrictions significantly impacted the supply of iPhone 14 Pro and iPhone 14 Pro Max and lasted through most of December,” Cook said during an earnings call, citing a November notice that the company put up a warning that restrictions forced its major iPhone factory in the city of Zhengzhou to operate “at significantly reduced capacity.” However, “production is now back where we want it to be,” he said.

Apple announced sales of $117 billion for the quarter ending December 31, a 5 per cent decrease from the previous year. Apple’s profit also dropped by 13.4 per cent to $30 billion.

Earnings were also hampered by “foreign currency headwinds” by a strong dollar and a “difficult macroeconomic environment,” according to Cook.

According to Cook, another cause was sluggish demand in China, where the business reported a 7 per cent drop in sales due to Covid-19 regulations. When those restrictions were lifted, there was a “significant change in traffic in our stores,” he added. Greater China sales, which include Hong Kong, Macau, and Taiwan but are primarily from the mainland, fell to $23.9 billion in the third quarter.

Meanwhile in India, the company “set a quarterly revenue record” with growth in the “strong double digits,” said Cook. However, he did not specify any numbers while speaking about India. The South Asian nation is a “hugely exciting” market, he said, and Apple is putting “a lot of emphasis” on it, added Cook.

Apple has been increasing its manufacturing capacity in India. Foxconn Technology Group, for example, has invested $500 million in the company’s Indian affiliate by December 2022.

Apple also expects India to manufacture up to half of the world’s iPhones by 2027. In September last year, JPMorgan predicted that India will produce at least one-quarter or 25 per cent of all iPhones by 2025.

Cook also confirmed that Apple will be working on their China Plus One policy and that they will be diversifying iPhone’s supply chain. “There are component components from many various nations around the world, and the final assembly comes from three different countries around the world on just the iPhone,” he explained. “We’ll keep optimising it over time.”

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