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Apple’s key China suppliers caught in lockdown after iPhone 14 launch

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Apple launched new fashions of its iPhone, Apple Watch, and AirPods on Wednesday, delivering its flagship line of latest merchandise on schedule regardless of battling by means of a yr of provide chain turmoil.

A collection of points in China had made Apple work additional exhausting this yr to unveil these merchandise on time, and as he offered the brand new fashions, Apple CEO Tim Cook dinner sounded relieved.

“At present, we’re going to make these merchandise and [your experiences with them] even higher,” Cook dinner mentioned on the launch occasion, known as ‘Far Out’, that was streamed on YouTube. “I’m happy with all of the groups and exhausting work that went into making these [products] potential.”

Now, nevertheless, Apple faces what could also be a a lot increased hurdle: delivering these merchandise to shoppers.

China ties

Apple depends closely on a system of factories, suppliers, and assemblers in China to make the overwhelming majority of its merchandise. However this provide chain was thrown into chaos this yr because of the Chinese language authorities’s COVID zero coverage.

Cook dinner mentioned in a July earnings name {that a} months-long COVID lockdown in key commerce and manufacturing hub Shanghai hampered manufacturing for Apple’s laptop merchandise.

“When the COVID restrictions hit within the Shanghai hall, we misplaced the first supply of provide for Mac models,” Cook dinner mentioned on the earnings name. “And that was both working at a decreased price or down fully for almost all of the quarter. And so it was a really large influence to the Mac enterprise.”

Amid China’s provide chain woes, some analysts are shocked that Apple was in a position to unveil its new line of merchandise on time.

“Launching three new core {hardware} merchandise inside the Apple ecosystem regardless of the largest provide chain disaster seen in fashionable historical past is a serious feat for [Apple CEO Tim] Cook dinner & Co., particularly with the zero-COVID shutdowns in China seen in April/Might,” wrote Dan Ives, managing director at wealth administration agency Wedbush Securities, in a Wednesday observe.

Supply worries

Now that Apple has launched these merchandise, tens of millions of shoppers are relying on Apple to ship them. For that to occur, the factories of Apple’s Chinese language suppliers should run full pace—a purpose that present occasions in China could make more and more tough to succeed in.

As of this week, 33 cities and 65 million individuals in China reside underneath some form of lockdown, in response to Chinese language outlet Caixin, and a few of Apple’s key China suppliers are caught in one in all them.

Chengdu, a metropolis of 20 million individuals in southern China, is residence to at the least three key Apple suppliers—Foxconn, BYD, and Jabil—that produce Apple iPads. These suppliers, which had already been working at decreased capability in current months attributable to a warmth wave and consequent energy scarcity, have been underneath nearly full COVID lockdown, together with the remainder of Chengdu, since final week.

To maintain their factories open throughout COVID lockdown, these suppliers have arrange a ‘closed-loop manufacturing’, which includes quarantining staff throughout their off hours. However it’ll possible be tough for the factories to function at full capability underneath COVID restrictions.

“The brand new spherical of COVID lockdown measures may deliver new disruptions to manufacturing planning… It’s actually an eventful season and we’re involved whether or not the lockdown could possibly be relieved quickly,” a supply with information of Apple’s Chengdu provide chain tells Nikkei Asia.

Tough diversification

Apple has tried to cut back its dependence on China lately by shifting extra factories and suppliers to locations like India.

However Apple’s efforts to diversify away from China have been thwarted by China’s more and more refined community of suppliers and factories. As the standard of producing in China improves, Apple has begun to purchase an increasing number of elements like glass shows from Chinese language firms quite than from abroad.

“That pattern isn’t slowing down,” Dan Wang, analyst with Gavekal Dragonomics, tells the New York Instances.

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