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16.04.2022 02:15 PM
Apple and other manufacturers face difficulties due to restrictions in China
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Analysts have warned that shipments of some Apple products, as well as Dell and Lenovo laptops, risk delays if quarantine in China due to COVID-19 persists, as restrictions force assembly shops and enterprises to close.

Apple and other manufacturers face difficulties due to restrictions in China

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China's strong desire to stop the spread of COVID-19 has also led to congestion of highways and ports, downtime due to a lack of workers waiting for government permission to resume work - disruptions that spread through global supply chains.

Apple Inc's supplier, Pegatron Corp, said this week it would suspend operations at its factories in Shanghai and Kunshan, where, according to supply chain experts, it produces the iPhone 13, the iPhone SE series and other outdated models.

In addition, Quanta Computer Inc - the company that makes about three-quarters of Apple Macbook computers worldwide - has also stopped production, which could have a more serious impact on shipments.

The final impact on the supply chain of Apple and other multinational manufacturers is unclear and depends on factors, including how long the blockages will last. The volume of losses that threaten companies from downtime is also unclear. However, the fact that they will necessarily be reflected in the balance sheets, and in general on the GDP of their countries, is for sure.

According to analysts, the company may also consider redirecting production from Shanghai and Kunshan to factories elsewhere, such as in Shenzhen, which is currently not closed. However, this solution looks unreliable, since there is no certainty that other provinces will not be covered by new outbreaks of coronavirus.

"Apple may consider transferring orders from Pegatron to Foxconn, but we expect volume may be limited due to logistics issues and the complexity of setting up equipment," said Eddie Han, a senior analyst in Taipei. Foxconn is a trademark of Hon Hai Precision Industry Co Ltd.

According to Khan, in the worst case scenario, Pegatron could fall behind by 6-10 million iPhone units if the quarantine lasts two months and Apple is unable to redirect orders.

Apple did not respond to a request for comment.

But the heads of Huawei Technologies Co Ltd and Xpeng Inc noted the huge economic costs if the factories in Shanghai will not be able to resume production in the near future.

Recall that Shanghai is approaching the third week of quarantine, and so far there are no signs of a wide reopening.

Forrest Chen, research manager at TrendForce, believes that if the restrictions are lifted in a few weeks, there is still a chance to recover.

However, "if the lockdown lasts longer than two months, there is no way to recover. At this point, after the lock is lifted, end users will have a shortage," he said.

Some suppliers may also change the production route itself.

Unimicron Technology Corp, which manufactures printed circuit boards for companies including Apple, said that the impact of the quarantine in Kunshan is still insignificant, and that it can rely on other factories in Hubei Province and Taiwan to support production.

But logistics and transportation remain a nationwide problem as cities across China take steps to restrict communications.

One factory owner in Kunshan reported that the district government announced a protocol for reopening, but did not name a date for its implementation.

Laptop manufacturers may also be affected. These include, among others, Compal Electronics Inc, a Taiwanese company that manufactures PCs for Dell Technologies Inc and Lenovo Group Ltd at their factories in Kunshan. Chen estimates that approximately 50% of Compal's laptop production is located in Kunshan.

However, Compal representatives reported on Friday that they did not stop production in Kunshan.

Dell and Lenovo also did not respond to emails seeking comment.

It seems that the fate of reducing production awaits not only tech giants, but also other corporations that have located their facilities in China, because so far the Chinese government does not show hopes for easing quarantine measures. This will hit not only the retail of the western region, but also the Asian region itself, among other things, reducing demand for the yuan.

Egor Danilov,
Analytical expert of InstaForex
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