China’s COVID Lockdowns May Affect iPhone Shipments

The Apple Store at Union Square, the heart of San Francisco’s upscale tourist district, had drawn more than 30 customers within a few minutes of opening Friday morning. Visitors, couples and even a preschool-age boy browsed the atrium packed with iPhone 13s and watches to try out. A sign urged people to trade in old phones to save money on the 13s.

But a staff member could not say when the iPhone 14 would come out — presumably sometime this year — or what it would cost. Some shoppers wondered whether it would be delayed or cost more than expected given the months of supply chain disruptions in China, where the phones are made.

“This stuff has got to hit hard at some point,” said Bill Kimberlin, an Apple Store shopper from San Francisco.

Apple, based in the Silicon Valley, just 50 miles south of San Francisco, outsources iPhone parts from around East Asia, and its handsets are assembled in China.

Apple had to delay product rollouts first in 2020, when new gear was held up for a month because of China’s first COVID-19 wave, said Rachel Liao, senior industry analyst with the Taipei-based Market Intelligence & Consulting Institute.

In the first quarter this year, she said, lockdowns in China suspended assembly plants, including at least one operated by Pegatron. Pegatron is the No. 2 iPhone assembler, with 25% of orders, after Foxconn. Both companies are based in Taiwan but manufacture in China.

Since 2020, the costs of making the iPhone 12 and iPhone 13 series have increased “slightly” because of a materials shortage in the semiconductor supply chain, Liao said.

“Sharp and protracted lockdowns are causing a lot of short-term havoc on logistics, and it’s obviously affecting delivery times significantly,” said Ivan Lam, senior research analyst with market analysis firm Counterpoint Research.

Apple declined to answer a query from VOA about its China supply chain.

Not just phones

Supply chain upsets set off by China’s lockdowns in the major commercial hubs Shenzhen and Shanghai are slowing exports of products ranging from phones to building materials to motor vehicles. Western nations are experiencing shortages and higher prices imported goods.

Chinese authorities ordered Shenzhen shuttered in March, and Shanghai, with a population of about 26 million, closed weeks later. Those closures have kept workers away from factories, delivery jobs and seaports.

Cities are locking down as part of Chinese President Xi Jinping’s “zero-COVID” policy, aimed at controlling deaths from the coronavirus.

“The impact of the COVID-19-related restrictions and lockdown there in Shanghai is going to be severe on businesses, not just in China but globally,” said Ker Gibbs, executive in residence at the University of San Francisco and former president of the American Chamber of Commerce in Shanghai.

“Shanghai is so important as a port and as a logistics hub, as a supply chain, so that any business that is touching China is going to be impacted by the lockdown,” Gibbs said.

COVID-19 cases in China, the world's largest consumer market, “exacerbated” a drop in global mobile phone production in the first three months of 2022, Taipei-based market analysis firm TrendForce said in an emailed statement May 10. It says production volume worldwide was 310 million phones in the same period.

Jayant Menon, a visiting senior fellow with the ISEAS Yusof Ishak Institute Regional Economic Studies Program in Singapore, calls demand for China-made goods “uneven” — another cause for supply chain upsets. He anticipates the disruptions will last for two more quarters.

“The quantities involved, I think, will clearly reflect the kind of disruptions still ongoing in China because of their zero-COVID strategy,” he said.

Strategies for smartphones

Smartphone supplies are holding up better than those of many other China-made goods, analysts say.

Phone parts such as chips and screens are sourced from outside China; for example, camera lenses are made in Taiwan, and flash memory is produced in South Korea.

“These things are counted as exports from China, as if 100% of it were made there, and in fact, a much smaller percentage is actually created in China,” said Douglas Barry, vice president of communications at the U.S.-China Business Council, an advocacy group in Washington with over 260 members.

Apple now requires suppliers to increase inventories as it plans further in advance for product launches, Liao said. That’s a hedge against more supply chain problems.

The Silicon Valley icon is now asking its assemblers over the longer term to cut reliance on China and raise orders for factories in India, she added. Its chief assemblers — Foxconn, Pegatron and Wistron — will continue to increase production capacity in India, she predicted. Wistron is also based in Taiwan.

Apple is diversifying further with assembly orders to China-based Luxshare Precision Industry. Liao says that firm handles 3% of iPhone orders, with the prospect of more this year.

Apple was the world’s No. 2-selling brand of smartphone after Samsung in the first three months of this year, with an 18% market share and 56.5 million units shipped, according to market research firm IDC, up slightly from the same period in 2021.

Some smartphone factories are using “closed-loop operations” to keep production going in China, Lam said. Companies such as Foxconn have long housed workers in factory compounds so large that some have compared them to cities.

“At the end of the day, companies will assess their vulnerabilities and adjust their supply chains accordingly,” Barry said. “It won’t be easy, and consumers will feel their pain by having to wait and paying more for products they want.”

Source: Voice of America

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