New COVID-19 lockdowns in China could hit iPhone production hard

Analysts note that China’s new COVID-19 lockdowns are hitting Apple’s supply chain hard. And the pain is likely to get worse, with production backlogs of up to 10 million iPhones.

And it’s not just iPhones. Authorities halted production at three key suppliers for assembling iPhones, iPads and Macs. Meanwhile, Apple is negotiating to reopen production lines, though success may be hard to come by, an analyst said on Friday.

This follows recent news of assembly and shipping delays on built-to-order MacBook Pro models.

New COVID-19 lockdowns in China disrupt Apple’s supply chain

Amid the global COVID-19 pandemic, many countries are looking to lessen the impact of the contagion without completely disrupting life. China, however, takes a more extreme position. It aims to eradicate the disease within its borders by stopping its spread from the cold through repeated confinements.

This could stem, at least in part, from the fact that vaccines produced there are inferior in effectiveness to vaccines produced elsewhere.

A Shenzhen lockdown last month forced Foxconn to halt iPhone assembly at two factories. However, between exemptions for closed-loop production and the company’s ability to switch to backup facilities, iPhone production hasn’t been hit hard.

Since then, however, assembly of Apple products has stopped at facilities owned by partners Pegatron, Quanta and Compal. Foxconn’s Zhengzhou facility is still operating normally, with additional COVID-19 precautions. But that may not last.

Apple may be negotiating

TF Securities analyst Min-Chi Kuo tweeted on Friday (see below) that Apple was trying to negotiate the reopening of production lines “next week at the earliest”. But success is hardly guaranteed, although hope for a better outcome is why Apple’s supply chain hasn’t seen a significant reduction in orders.

(2/2) I don’t know if Apple can pull it off, but it may explain why Apple’s supply chain hasn’t seen significant reductions in orders after the COVID lockdowns. In addition, aggressive bargaining for work resumption also represents most Apple products have strong demand now.

But Reuters reported on analysts saying the situation is likely to get worse.

Shipments of some Apple products, as well as Dell and Lenovo laptops, will likely face delays if the lockdowns continue, analysts said. This will happen when the brakes force the assemblers to close and it becomes more difficult to maintain closed-loop arrangements.

worst case scenario

An analyst has spoken of the worst-case scenario amid the ripple effects of the lockdowns on supply chains. A few weeks delay is one thing. But a few months, it is much more serious.

“Apple may consider transferring orders from Pegatron to Foxconn, but we expect volume to be limited due to the logistics issue and difficulty in fitting equipment,” said Eddie Han, senior analyst. at Isaiah Research, based in Taipei.

He added that Pegatron could fall behind 6 million to 10 million iPhone units if the lockdowns last two months and Apple cannot reroute orders.

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