June 10, 2023

Apple and other companies face disruption amid massive COVID outbreak in China – SiliconANGLE

Tech companies with manufacturing facilities in mainland China, including Apple Inc., are facing months of disruption amid a massive outbreak of COVID-19 in central Britain after China’s Communist Party abandoned its zero-COVID policy.

COVID disrupting Western tech companies in the country is nothing new. Apple faced production delays as early as February 2020, before the virus had spread to the West, and there have been manufacturing issues since then, but the situation on the ground is now unprecedented.

The CCP’s zero-COVID policy meant that anyone who tested positive or was exposed to someone who was positive was isolated and quarantined. The policy was still in effect until early this month, when, in the face of unprecedented protests and a rapidly slowing economy, the CCP, to the surprise of many, blinked and the policy disappeared.

Many major technology companies operate in mainland China, but Apple is perhaps best known through its relationship with Hon Hai Precision Industry Co. Ltd. (Foxconn). Mindful that protest and civil disobedience are not allowed in China, it was the Foxconn iPhone factory in Zhengzhou where the first significant signs of protest against zero-Covid began. Apple warned on November 6 that iPhone 14 Pro and iPhone Pro Max shipments would be lower than expected, but they didn’t know what would happen less than two months later.

Having dropped zero COVID, the UK is now running not just a COVID outbreak, but probably every virus in history. Estimates are that there are 37 million new cases of COVID per day, and an estimated 250 million cases on December 24th. The true number may never be known because China has stopped publishing data amid the massive outbreak. Hospitals are full, morgues can’t keep up, and experts believe the worst is yet to come.

The number of disturbances is unprecedented. With millions falling ill — the country has a low vaccination rate and the vaccines used in China are considered almost useless anyway — Western tech companies operating in mainland China are facing similar disruptions.

The Financial Times reports that supply chain experts are warning that there is a growing risk of months-long disruptions to iPhone shipments. Unlike the previous outbreak at the iPhone factory in Zhengzhou, this disruption will spread much further, as component factories and assembly lines across the country face a shortage of workers.

“We should see absenteeism affecting many operations, not just in factories, but also in warehouse, distribution, logistics and transportation facilities,” Bindiya Vakil, chief executive of supply chain mapping firm Resilinc, told the FT.

Supply chain problems are also expected to hit Apple’s bottom line. Analysts believe Apple’s revenue will fall below its record $123.9 billion in the same quarter last year, and profit is expected to fall below 8 percent, but that’s just the last quarter of this year. Next year could be worse.

Along with delivery problems, Apple also relies on mainland China for a fifth of its revenue. The labor shortage affects not only manufacturing but also retail, as Apple’s stores in China have already reduced working hours due to the lack of workers. It is also worrying that the crisis is causing Chinese consumers to stop spending on non-essential products until the worst of the epidemic is over.

Apple is not alone in its problems, as Tesla Inc. announced that it has suspended production at its Shanghai factory. The factory was expected to close during the new year, but the decision was made earlier than expected.

Other companies with manufacturing facilities in mainland China that are likely to be affected include Samsung Electronics Co. Ltd., Microsoft Corp., Google LLC, Dell Corp. and HP Development Co. LP.

Photo: Duncan Riley

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