Apple supply chain in China hit by lockdowns as key partner suspends production in Shanghai, Kunshan
- Pegatron Corp has stopped making computers, communication devices and consumer electronics for branded vendors in Kunshan
- An Omicron outbreak has caused widespread interruptions to tech manufacturing activities in the Yangtze River Delta
Apple’s supply chain is facing extended disruptions caused by China’s strict Covid-19 control measures, after the US tech giant's second-largest contract manufacturing partner suspended production at key factories in Shanghai and nearby Kunshan, a city in eastern Jiangsu province.
Pegatron Corp, a major electronics contract manufacturing service provider for Apple, stopped making computers, communication devices and consumer electronics for branded vendors in Kunshan since the city entered a lockdown a week ago.
The Taiwanese company’s assembly lines in Shanghai, where a sweeping lockdown has been in place for more than two weeks, also halted operations, a Pegatron spokeswoman confirmed on Tuesday.
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The company said it has been communicating with customers and vendors, and actively cooperating with local governments to resume operations as soon as possible. It is also continuously evaluating the business and financial impact of the lockdowns.
Apple did not immediately respond to a request for comment.
An Omicron outbreak in Shanghai and neighbouring industrial bases has caused widespread interruptions to manufacturing activities in the Yangtze River Delta.
Within Taiwanese companies alone, 161 have paused production in Shanghai and Kunshan, Taiwan’s Financial Supervisory Commission said on Monday.
As of the financial year 2020, Apple has several dozen suppliers based across Jiangsu and Shanghai, according to a list published on the US firm's website.
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Kunshan, a manufacturing hub where many Taiwanese electronics makers are based, has factories operated by Apple suppliers Foxconn Technology Group and Luxshare Precision.
The immediate impact of Pegatron’s shutdown remains small to Apple, according to Ming-Chi Kuo, a TF International Securities analyst who follows Apple, but constant disruptions could hurt supply chain resilience and consumer confidence over the long run.
Kuo maintained his latest estimates made on March 28, when Shanghai entered a two-phase lockdown, that between 15 million to 20 million new iPhone SEs would be shipped around the world this year, down from a previous forecast of 25 million to 30 million units.
Kuo said that shipments would likely suffer further if Shanghai’s lockdown continued.
“A complete resumption of production [in Shanghai and Kunshan] may not be possible until late April or early May,” he said.
“The longer the lockdown lasts, the larger the effect on consumer confidence will be, which would probably be detrimental to shipments of consumer electronics.”
Pegatron said it was awaiting advice from local governments on when its factories could resume production.
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Supply chain risks are rising in China, as authorities double down on Beijing's "dynamic zero" Covid-19 policy.
China’s cabinet, the State Council, has ordered local governments not to disrupt logistics flow with unnecessary roadblocks.
On the ground, however, truck drivers said they found it difficult to travel between cities, as local governments impose varying requirements for testing and quarantines, according to Chinese media reports.
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The disruptions add to China’s struggle in keeping its status as the world’s factory amid increasing geopolitical headwinds, rising production costs and intensifying competition from emerging markets such as Vietnam and India.
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According to Pegatron’s 2020 annual report, the company already has manufacturing locations in Mexico, the Czech Republic, Indonesia, Vietnam, India and Taiwan.
On Monday, Foxconn officially started manufacturing the iPhone 13 in India at a plant near Chennai, capital of the southern state of Tamil Nadu.
Despite efforts by Apple and its manufacturing partners to diversify their supply chain network, China remains a major manufacturing hub, according to Kuo.
“China is still Apple’s most important production base in the foreseeable future,” he said.
