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Apple faces difficulties in China as COVID-19 spreads

Technology companies with manufacturing plants in China, including Apple, are facing months-long disruptions. Now, the rapidly spreading COVID-19 continues to create an uncertain future.

On December 25, the Financial Times reported that Apple’s business was under threat due to the widespread outbreak of COVID-19 in China. Supply chain experts have warned that the risk of months of disruption to iPhone production is growing as experts in China predict the current outbreak will last longer.

Lack of labor

Zeng Guang, former head of the epidemiology team at the Chinese Center for Disease Control and Prevention (CDC), said it will take another two to three months for various regions in China to reach the peak.

Over the weekend, the government of Zhejiang province, which borders Shanghai, said daily COVID-19 cases there had surpassed 1 million and could double to a peak of 2 million. Every day of Chinese New Year.

After China lifted its “no-COVID” policy, a long-term risk of the virus’ spread looms: possible worker shortages at parts factories or assembly plants across the country. nation. Apple is one of them.

Apple faced production delays as early as February 2020 when COVID-19 spread to Western countries and caused production problems. However, the current situation is unprecedented.

The US tech giant has faced more than a month of turmoil at Foxconn, its assembly plant in Zhengzhou (China), also known as “iPhone City,” since the COVID-19 outbreak last October.

Foxconn has shifted some production to other factories across China, and Apple has been working with component suppliers to reduce unusually long wait times — customers can wait up to 23 days or so. Buy a high-end iPhone in the US, according to UBS (Switzerland) research.

Bindiya Vakil, CEO of supply chain risk management firm Resilinc, said many businesses would be affected, not just factories but also warehouses and logistics facilities. Distribution and Shipping.

Income decline

In November, Apple warned that there could be “significant” disruption ahead of the holidays. Analysts expect Apple’s revenue this quarter to fall short of the company’s record fourth quarter of 2021 of $123.9 billion, with net income expected to drop more than 8%.

That would derail several quarters of consistent revenue growth as Apple faces a shortage of 5 million to 15 million iPhones.

Forecast models show heightened risks to Apple’s 2023 revenue as the COVID-19 outbreak could worsen in the ensuing winter after China eases strict anti-epidemic rules. Serious.

Last week, an Apple store in Beijing’s main shopping district had to shorten its hours because all employees fell ill.

A fifth of Apple’s revenue comes from sales in China, where more than 90 percent of Apple’s iPhones are assembled. Apple’s smartphone rival Samsung, which left China in 2019, has diversified its assembly operations in at least four countries.

Horace Dediu, an independent analyst at consultancy Asymco, said Apple’s production and operational difficulties in recent months could lead to a demand crisis driven by Chinese consumers. Spending habits are often adjusted under difficult circumstances.

Apple’s most important suppliers, including Foxconn, Pegatron and Wistron — three Taiwanese companies — responded by seeking to expand their presence in India.

Prabhu Ram, director of industrial intelligence at CyberMedia Research in Gurgaon, India, estimates that 7% to 8% of iPhones are assembled in India, and predicts that all three of the aforementioned suppliers are targeting pepper. The goal is to assemble 18% of iPhones in India by 2024.

Many technology companies are affected

Not only Apple, but many other foreign technology companies with production bases in mainland China are also facing months-long shutdowns due to the impact of COVID-19.

Electric car maker Tesla halted production at its Shanghai factory late last week, the sources said. The plant was due to close for the New Year’s Day holiday, but the decision came earlier than expected. Other companies with manufacturing plants in mainland China could be affected, including Samsung, Microsoft, Google LLC, Dell and Hewlett-Packard, according to SiliconANGLE.

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