The high proportion of production in China is becoming a problem for the iPhone group.
(Photo: Reuters)
Dusseldorf, San Francisco The Foxconn plant in Zhengzhou, China, has been in a state of emergency for weeks. The approximately 200,000 workers at the important Apple supplier are fighting back against the strict Covid measures imposed by the government in Beijing. Thousands of workers fled for fear of being locked inside the factory, according to the NGO China Labor Bulletin. A week ago there were demonstrations and police action.
According to recent analyst reports, this has a significant impact on Apple. The group manufactures almost all iPhones in the People’s Republic. The failures could total 15 to 20 million iPhone 14 Pro and Pro Max, according to TF International Securities’ Ming-Chi Kuo. “Due to the high price of the iPhone 14 Pro series, Apple could generate significantly less revenue than the market expects in the current quarter,” said the analyst, “by 20 to 30 percent or more.”
Apple would thus miss the analysts’ average expected sales target of $125 billion in the current quarter by up to $37 billion. Kuo’s statement carries weight, and the analyst has close ties to contract manufacturers like Foxconn.
iPhone 14 Pro no longer available before Christmas
According to his information, iPhone production was only 20 percent in November, and it will only improve to 30 to 40 percent in December. The Taiwanese company Foxconn is currently luring workers back with bonus payments and higher salaries.
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Other analysts are also cutting their forecast, albeit less severely. “Apple is struggling to get through a combination of lockdowns and worker protests,” said Evercore ISI’s Amit Daryanani. In his opinion, Apple can produce up to eight million fewer iPhones in the strong Christmas quarter, which leads to a drop in sales of up to eight billion dollars. Wedbush’s Dan Ives speaks of a “punch in the stomach” for Apple.
According to Kuo, Apple may have misjudged the situation in Zhengzhou and hoped for higher production. Suppliers of components for the iPhone 14 Pro “were not notified by Apple to cut shipments, resulting in higher inventory levels in the current quarter for several weeks.”
>> Read also: New lockdowns are squeezing China’s growth and weighing on European companies
According to the Apple website, the high-quality, high-margin iPhones of all things will no longer be available until Christmas Day during the strongest sales phase of the year. Depending on the equipment, the Pro models cost between 1300 and 2100 euros each in Germany. The basic models, on the other hand, are available almost immediately.
Kuo expects that customers will not wait for Apple’s replenishment and that the company will “lose” sales because of this and the global recession. In fact, two of the busiest shopping days ahead of the holiday season, Black Friday and Cyber Monday, are already over.
High dependency on China is to be reduced
Under the leadership of current CEO Tim Cook, Apple has increasingly relied on China as a production location over the past quarter century. According to the investment bank JP Morgan Chase, 94 percent of all iPhones, 96 percent of all Apple Watches and all Macbooks are produced there today.
However, the company is trying to diversify. Foxconn, for example, built iPhone production in India as the most important partner, and the iPad is to be manufactured more in Vietnam.
But the change is happening slowly and is difficult given the large numbers. JP Morgan Chase therefore still estimates the share of Chinese production for 2025 at 75 percent of all iPhones, 81 percent of all Apple Watches and 95 percent of all Macbooks.
The problems in Zhengzhou confirm Apple in the construction of other locations, but it is not the only reason. “Personnel costs in China are rising sharply. This is especially true for Shanghai,” said KC Quah, supply chain expert at market researcher Gartner. Wages in India or Vietnam are significantly lower. However, this is not immediately reflected in lower production costs.
“In China there is high quality in production and all the suppliers are local. It’s not that easy to replicate in India or Vietnam,” Quah said. He was convinced that Apple would nevertheless diversify its supply chains. “The risk of being too dependent on one country is simply too high,” Quah warned.
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