Apple may be facing a shortage of iPhones due to factory disruptions in China

Apple may be facing a shortage of iPhones due to factory disruptions in China

After weeks of expressing optimism about the global economy and its business, Apple on Sunday warned that its sales failed to live up to expectations as a key iPhone factory in China was shut down due to the coronavirus outbreak.

The sharp shift in its business outlook is the latest reminder of the risks of the company’s centralized manufacturing supply chain in China. Once an operating force that gave Apple the flexibility to have legions of workers churn out iPhones to meet global demand, its reliance on China has become a liability as the country’s commitment to a zero-covid-19 policy has forced it to lock down cities, businesses. and factories.

In mid-October this year Apple’s largest iPhone maker, Foxconn, has closed its main factory in Zhengzhou because the cases of coronavirus have increased. Foxconn has closed the facility to the outside world and barricaded some 200,000 workers inside its compound. Production of iPhones continued at “significantly reduced capacity,” Apple said in a statement on Sunday. The company added that its production difficulties will mean customers will have to wait longer between the purchase and delivery of its high-end iPhone 14 Pro and 14 Pro Max.

“We are working closely with our supplier to return to normal production levels while ensuring the health and safety of every employee,” Apple said in a statement.

The shutdown is the second to affect Apple this year. It lost about $4 billion in sales of iPads and Macs in the spring and summer after factories outside Shanghai were shut down to limit the spread of Covid-19.

Apple’s decline comes amid a broader decline in the outlook for the tech industry. Shares in Alphabet, Amazon and Meta have fallen this year amid slowing economic growth that has led to weaker e-commerce and advertising sales. Apple’s share price fell but largely avoided the steep declines of its peers as it continued to deliver solid business results.

China’s zero-tolerance approach to Covid-19 has been promoted by China’s top leader, Xi Jinping. The country’s leadership has stuck to that policy since Mr Xi was elected to a third term.

Apple’s presence in China is so prominent that Locals call Zhengzhou “iPhone City”. At full tilt, the Foxconn factory there could produce 500,000 iPhones a day. It is the largest iPhone factory, accounting for more than half of Apple’s annual sales.

“This is what Apple was afraid of,” said Wayne Lam, technology analyst at CCS Insight. “China is not letting go of this zero-Covid policy and it will have a big impact as these premium phones were the last area of ​​the smartphone market to see demand.”

After Foxconn closed its Zhengzhou factory, some factory workers fled the facility and began walking to their homes across the countryside. Images and videos of their escape have been shared on social media. Leo Lin, a 29-year-old factory worker who spoke to The New York Times Last week, he said, many workers panicked as quarantine facilities began to fill up.

Foxconn responded by offering workers an extra $14 a day to keep working. It later increased those payments to $55 a day.

Apple has begun diversifying its supply chain away from China, moving production of some iPhones to India and other products to Vietnam. But the company still relies on China to make more than 90 percent of the iPhones it sells, according to analysts.

The push to diversify is “clearly not fast enough,” Mr. Lam said.

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