Why is Apple rethinking China? | So Good News

China’s zero-covid policies threw a wrench in the entire supply chain just in time for the holidays.

Citing China’s covid-19 restrictions, Apple in China It announced earlier this month that its factory in Zhengzhou could be “significantly scaled back,” which has led to fewer and delayed shipments of the iPhone 14 Pro and iPhone 14 Pro Max.

Meanwhile, Bloomberg says that Apple is scaling back production of lower-priced iPhone 14 models due to “soft demand.” In addition, In another blow to the relationship between China and the US business community, The US Commerce Department recently announced new restrictions on China’s semiconductor industry that could end Apple’s plans to use Chinese memory chips.

“It will have an impact. The lead time of some models is pushed to early January,” IDC analyst Ryan Reith told Grid. “There will be challenges to make sure. [products] In some markets for Christmas. Part of that is because the factories that we saw in China are out of stock.”

The outage escalated on Wednesday as workers and security personnel clashed at the Zhengzhou iPhone factory, according to videos and media reports from the scene.

Apple is just one of a number of American companies rethinking their extensive business ties in China, but not well-resourced and entrenched. Apple’s supplier list includes 151 Chinese locations. China is not only a workshop but also a market for Apple. In its most recent fiscal year, a fifth of its sales—$68 billion—$366 billion—came from mainland China. From Hong Kong and Taiwan.

“Apple is facing what almost every US company faces: reassessing the risk. This is nothing new, and companies have been reassessing the political and economic risks of doing business in China for at least 10 years,” William Reinsch, Scholl Chair of International Business at the Center for Strategic and International Studies and a former export policy official at the Commerce Department, told Grid.

Those efforts to reassess the risk of corporate ties to China have only been accelerated by Trump’s ongoing trade war with China, largely driven by the Biden White House, as well as Covid-19 and the wave of factory shutdowns that continues today.

“This latest Covid situation is an absolute disaster for Apple in its most important holiday quarter,” Wedbush Securities Analyst Daniel Ives wrote in a note to clients. “With demand remaining strong during the holiday season, we estimate this to be negative based on manufacturing/supply issues in China, which affected about 3% of iPhone sales this quarter.”

Apple has started some manufacturing in Vietnam and India. Apple is looking to expand its semiconductor sourcing, but not far from manufacturing giant Taiwan Semiconductor Manufacturing Company (TSMC) – arguably “the world’s most important technology company”. Working in Arizona. The Wall Street Journal reported that TSMC is looking to expand into Japan.

An Apple spokesman declined to comment.

How is US policy changing the landscape for Apple?

The export controls recently announced by the Biden administration “were determined not to be in the U.S. interest to allow and facilitate China’s technological advances in AI and high-performance computing.”

Going forward, though, the Commerce Department’s rules won’t disrupt Apple’s existing manufacturing and assembly relationships with China. That may mean new Chinese suppliers are out of the question, especially for high-end components. “If there is an attractive Chinese seller, they can face sanctions. Apple will stop talking to Chinese semiconductor manufacturers,” Goldberg said.

The immediate impact of this new US policy for Apple is that it may shut down talks between Apple and Chinese company Yangtze Memory Technologies Corp (YMTC) to make memory chips for some phones sold in China, Nikkei reported. Instead, Apple will need to continue to rely on a Taiwanese semiconductor manufacturing company, where it currently sources semiconductors. “They’re 100 percent dependent on TSMC anyway,” Goldberg said.

Apple’s stop-and-start relationship with the YMTC is a capsule example of how the political winds blowing from both east and west can affect the course set by even the most powerful and resource-rich corporations.

“YMTC won the design for the current iPhone. They’re going to get a pretty significant order for Apple for the current iPhone run. They basically built a factory for Apple. They have a great product, and it’s very reasonably priced, and it has a lot of capabilities,” Jay Goldberg, founder of D2D Consulting, told Grid. “Now all this is over.”

While parts are sourced globally, iPhone production takes place largely in China, and any move to phase it out would undo years of investment in building a network of suppliers and training thousands of workers. “There are many dependencies; It’s a complex ecosystem of stakeholders,” Goldberg said.

At the same time, Companies operating in China reveal unpredictable government policy, whether it’s covid lockdowns or more desperate interventions. “It doesn’t take much to send 24 health and safety inspectors into a Foxconn facility and find 84 safety violations and shut down the facility,” Reinsch said. “Sent a message.”

Continued concerns for Apple

While Taiwan — and with its massive semiconductor industry — has not caused the same political headaches as China over Covid policy or political disputes with the United States, There are risks of conflict in the Taiwan Strait. “There was no other option but Taiwan,” Goldberg said. “There’s a lot of geopolitics embedded in there.”

For now, Goldberg says Apple will continue to use chips made by TSMC, and “there’s nothing that’s really going to change that in the next two years or so.” The only thing that can change is Intel,” he said, also working on semiconductor facilities in the United States built with tax incentives in the Chips and Science Act. But Goldberg cautioned, “It’s the end of the decade, 2030 timeline.” Goldberg predicted that any work done by TSMC in Arizona would affect a small portion of Apple’s iPhone business: “That’s probably enough. [chips in] Maybe iPhones sold in the US. [manufactured] At TSMC Arizona; But I’m not sure they’ll get all of that.”

“The key is resilience — don’t put all your eggs in one basket,” Reinsch said. For Apple, this means that there will be no chokepoints of complete dependence on Chinese products.

Thanks to Lillian Barkley for copy-editing this article.