Apple Stock Slides Ahead of Holidays Amid Protests in China and Supply Chain Crunch – During the holiday shopping season, Apple’s (APPL) supply chain is being disrupted by demonstrations in China, posing one of its greatest operational problems in years. Bloomberg reports that Apple supplier Foxconn will produce 6 million fewer iPhones than projected due to employee protests against China’s zero-COVID policy at the manufacturer’s Zhengzhou site.
Workers at the facility with 200,000 employees have criticized the policy’s strict lockdowns, citing, among other things, a lack of proper food supply. Shares of Apple closed down more than 2.5% Monday. The protests come as citizens in other Chinese cities rally against the government’s severe COVID restrictions. For Apple, the protests mean fewer consumers will be able to get their hands on iPhones during the crucial shopping season.
More worrying for the tech giant, however, is the fact that the Zhengzhou facility manufactures the majority of the $999 and $1,199 iPhone 14 Pro and Pro Max models. The iPhone 14 Pro and Pro Max have superior cameras, screens, and processors compared to the iPhone 14 and 14 Plus, which retail at $799 and $899, respectively. Apple equipped the iPhone 14 Pro models with more enticing features in the hopes that this would improve the average selling price of iPhones, hence boosting the company’s overall revenue.
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However, the COVID protests hampered these plans. Apple is straining to keep up with iPhone demand as production lines at the Foxconn plant slow to a crawl. Attempting to order an iPhone online at this time will certainly result in a January delivery delay. If buyers observe significant wait periods for iPhone 14 Pro models and they are in need of a new phone, they may opt for the iPhone 14 or a less priced iPhone, which would be detrimental to Apple’s bottom line.
“The zero China Covid policy has been an absolute gut punch to Apple’s supply chain, with the Foxconn protests in Zhengzhou a black eye for both Apple and Foxconn,” Wedbush analyst Dan Ives wrote in an investor note. “The reality is that Apple is extremely limited in their options for holiday season and are at the mercy of China’s zero Covid policy which remains a very frustrating situation for Apple as well as the Street,” Ives added. Apple built its supply chain around China thanks to its relatively inexpensive, specialized workforce.
Years ago, the company began manufacturing iPhones, Macs, and iPads in the United States. However, COVID-induced chip shortages and rotating lockdowns have compelled Apple to consider alternatives to China. Nikkei Asia reported in August that Apple is in discussions to manufacture Apple Watches and MacBooks in Vietnam. Nikkei reported in June that the business intended to manufacture iPads in Vietnam.
Apple stated in September that it would manufacture the iPhone 14 in India. Apple’s desire to relocate its operations outside China is not just motivated by the COVID. Apple is under pressure from geopolitical tensions between the world’s largest smartphone market and the United States to seek alternative locations to manufacture its products. It is not as simple as constructing a new factory and employing staff. Apple has extremely high standards for its manufacturing partners.
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Each new device that leaves the company’s assembly lines must meet its stringent production requirements. And it can take time to ensure that a new manufacturing company can match these expectations. For the time being, the iPhone manufacturer must continue to rely on its existing partner facilities and hope that lockdowns at the Zhengzhou plant will be lifted. In an effort to avoid future supply chain bottlenecks, the company will likely focus more on manufacturing partners outside of China in the future.