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A new outbreak of COVID-19 in China increasingly threatens Apple's business - there is no one to assemble and buy smartphones.

Published: 2022-12-26

Against the backdrop of the rapid spread of COVID-19 in China, industry experts predict an increase in risks for Apple's business - iPhone production interruptions lasting months are not excluded. The U.S. tech giant had already experienced problems in late autumn after an outbreak at Foxconn's Zhengzhou plant, but now the consequences could be much worse.

Foxconn is known to have shifted some production from its Zhengzhou plant to the company's other facilities in mainland China, and Apple has had to work closely with component suppliers to shorten unusually long smartphone shipment times. For example, buyers of the iPhone 14 Pro in the United States had to wait about 23 days from the date of order.

As Chinese authorities loosen sanitary restrictions and the country is literally engulfed in infection, new risks have arisen - a shortage of workers in factories that produce components for smartphones and assemble them. The problem affected the work of warehouses, distribution chains, logistics and transport infrastructure. On Nov. 6, Apple warned of "substantial" supply disruptions ahead of the holiday season, after the company had previously warned of slow sales growth.

Analysts agree that the company's revenue in the current quarter will fall below $ 123.9 billion - such indicators were achieved in the same period last year, net profit is expected to fall by more than 8%. This will break a streak of 14 consecutive quarters of revenue growth. According to reports, in the current quarter, Apple is experiencing a shortage of 5-15 million iPhones.

Initially, many analysts predicted revenue growth in the next six months, suggesting that late orders were unlikely to be canceled en masse. However, the risks to Apple's business are rising as simulations have shown that more than 1 million people could die in China in the coming winter months as pandemic restrictions are eased. An Apple store in one of Beijing's largest shopping districts has reportedly closed as all employees fell ill. At the same time, China accounts for about 20% of Apple's revenue, not to mention the fact that more than 90% of the iPhone is assembled in the country. Competitors from Samsung began diversifying production back in 2019 and have now organized the release of smartphones in at least four countries.

Experts say Apple could be hit with a double whammy - disruptions to production in China could be compounded by a demand crisis as Chinese shoppers are forced to rethink their habits - next year, the Chinese may have to limit spending. As for production, while Apple's Taiwanese partners are considering the release of smartphones in India as an alternative to Chinese production, but the “relocation” process may take quite a long time. According to Indian CyberMedia Research, the number of iPhones assembled in the country has grown to 7-8%, and the "big three" Taiwanese manufacturers intend to produce 18% of iPhones by 2024.