Apple supply chain braces for disruption from coronavirus outbreak

Apple’s China-centric manufacturing base is at risk of disruption after the Lunar New Year holiday, as the iPhone maker’s partners confront the coronavirus outbreak that has gripped the country and caused more than 100 deaths.

Virtually all of the world’s iPhones are made in China, primarily by Foxconn Technology Group – formally known as Hon Hai Precision Industry, the world’s largest electronics contract manufacturer – at its so-called iPhone City in Zhengzhou and by Pegatron Corp at an assembly site near Shanghai. Each of those locations is more than 500 kilometres away from Wuhan in central China, the epicentre of the viral outbreak, but that distance does not immunise them from its effects.

“I can’t imagine a scenario where the supply chain isn’t disrupted,” said veteran industry analyst Patrick Moorhead of Moor Insights & Strategy. “If there’s one major hiccup in the raw materials, fabrication, assembly, test, and shipping, it will be a disruption.”

Apple has been increasing production to meet higher-than-anticipated iPhone demand, Bloomberg News reported last week. The company typically launches its new high-end iPhones around September, so the virus is unlikely to have meaningful impact on those plans.

The company, however, is also preparing to begin mass production of a new low-cost iPhone in February, which is more at risk.

Apple has roughly 10,000 direct employees in China, across its retail and corporate entities. Its supply chain also has a few million workers manufacturing products like the iPad, iPhone and Apple Watch.

“Supply chain disruption is a worry if employees across Foxconn and other component manufacturing hubs in China are restricted,” said analyst Dan Ives of Wedbush Securities. “If the China outbreak becomes more spread it could negatively impact the supply chain which would be a major investor worry.”