Apple’s business is seriously threatened by the new wave of COVID-19 in China now that the strict “zero COVID” measures, imposed by the Government, begin to be relaxed.
The phone maker has had to endure a month of sheer chaos and ordeal inside the massive factory of its main assembler, foxconnin Zhengzhou, which is known worldwide as “iPhone City”, in the wake of a coronavirus outbreak that began in October.
It’s just three years since the virus emerged from Wuhan, but the world’s largest company is still reeling from its effects. And the situation is getting worse. Losses are accumulating, and the month of protests and paralysis due to the outbreak inside the factory could have caused losses in excess of 40,000 million dollars, according to estimates from Bloomberg.
A terrible month for Apple just before Christmas
Apple sent a statement on November 6 acknowledging that “COVID-19 restrictions have temporarily affected the iPhone 14 Pro and iPhone 14 Pro Max main assembly plant located in Zhengzhou,” and that the plant was operating at a “significantly reduced capacity”. And this happened in the most important time of the yearafter the launch of new models and weeks before the vital Christmas campaign begins.
The problems began in October, when workers left the factory premises for fear of COVID-19 or because of the exhaustion of the measures. In the absence of personnel, they were offered extraordinary bonuses to encourage their return. Some returned, but the leadership reneged on its promises and a riot broke out that, to the detriment of the Chinese Communist Party, was broadcast around the world thanks to Twitter and Instagram.
This incident triggered a general uprising in urban China fueled by the weariness of a large part of the population due to the strict anti-covid measures imposed by Xi Jinping. He decided to ease the restrictions due to the increasingly unsustainable economic and social situation in the country.
Apple’s revenue will be seriously dented in the next fiscal quarter, which is usually the most important for the manufacturer. Production issues don’t stop sales from taking place later once stock of its high-end phones arrives again, but Christmas is usually the most auspicious time of the year.
The consensus among analysts is that the company’s revenue this quarter will fall just below the record $123.9 billion it achieved in the same period last year, with net profit expected to fall more than 8%, according to bank estimates. This would break a 14-quarter streak of revenue growth as Apple experiences shortages of between 5 million and 15 million iPhones.
The stock problem has become apparent in Spain, where users have to resort to orders with waits of several weeks or visit stores in the hope of finding the model they want. This situation encouraged Jose Saez-Merino to program @iPhoneStockUKa bot Twitter to check the availability of the new iPhone in store. “This year we have seen a much more limited stock for Christmas compared to previous years where, for these dates, inventories were already stable,” says Saez-Merino. «I programmed the bot when Apple announced that there would be a lack of units, and in a short time I began to receive thank you messages from users who had been looking for an iPhone for a long time without success»
The but could be yet to come
The problems do not end here. It’s not just a losing quarter. Relaxing the “Zero COVID” measures will cause more outbreaks of COVID-19 to occur and may lead to labor shortages. Within a factory, a single positive case can affect phone production for several days or weeks, resulting in billion-dollar losses.
It should be noted that the Government does not allow importing vaccines developed abroad. In other words, they do not have the vaccines that experts consider to be the most effective, those based on mRNA, for political reasons. In addition, China did not start promoting vaccination in the elderly until November 2021. Only 70% of those over 60 years of age have all three doses, and only 40% of the elderly have the complete schedule. .
His strategy to end the virus based on quarantines and tests has not worked, and infections are expected to multiply, jeopardizing the transport of food, essential services and the production of goods on which millions of companies depend. In addition, the demand within the national market could also decrease, since citizens could refrain from buying goods considered as a luxury in the midst of a pandemic that could make basic products more expensive and increase uncertainty. More than 20% of Apple’s revenue from the sale of iPhones is thanks to units sold in China.
Trying to eradicate the virus instead of adapting to it has left Chinese production lines exposed. It is very difficult to migrate the production of technology outside of China, since all the factories are there, even those dedicated to the refining of minerals necessary for the production of mobile phones. But an alternative is needed, and major Taiwanese providers such as Foxconn, Pegatron and Wistron are already looking for ways to substantially expand their operations in other countries such as India.
Is there an alternative? Apple pins its hopes on Vietnam
As reported Wall Street JournalApple is asking its suppliers to actively plan the assembly of Apple products in other parts of Asia, particularly India and Vietnam, and is even trying to reduce reliance on Taiwanese assemblers like Foxconn. However, the slowdown in the global economy and the slowdown in hiring make it difficult for Apple to assign staff to introduce new product technologies, as they call it internally, to new suppliers and countries.
Apple and China had formed a perfect marriage, from which both have been benefiting greatly, until the pandemic. Now Apple needs alternatives, but change cannot happen overnight. It is very difficult to manufacture outside of China. The brand needs to keep putting new iPhones on shelves every month, and update its iPad and Macbook offerings. But it will be mandatory, and not only because of the management of the pandemic, but also because of the climate of geopolitical tension and the rapid and profound social changes that can be observed in China.
Young Chinese are no longer willing to work long hours inside a factory for low wages and are demanding higher wages and much better conditions than their parents had. Costs increase significantly, but cannot be passed directly to the consumer. Apple needs an alternative, but in Vietnam, although its industrial capacity is growing, it lacks the population to embrace all the production and does not have complexes as sophisticated and large as Zhengzhou. It is impossible, at the moment, to manufacture the iPhone 14 Pro Max in Vietnam, but the MacBooks are, which could begin to be produced there.
In India, which does have the necessary amount of manpower, it lacks proper government regulation and coordination. Apple has found it difficult to start operations there because each state is run differently, and regional governments place obligations on the company before they even allow it to start making products there.
Finding an iPhone this Christmas could have been difficult. But it will be even more difficult to find the necessary sites to replace the “iPhone city” built over decades to manufacture one of the most profitable products in history.