An Apple supply chain in China has been rattled by a report that the company is halting production of its iPhones and AirPod headphones in response to the ongoing conflict in Ukraine, further threatening the value chain.
On Tuesday, Nikkei reported that Apple had decided to halt production in the next quarter due to the ongoing conflict in Ukraine. Share prices for two of Apple’s Chinese suppliers, GoerTek and Luxshare Precision, plunged after the report was made public.
A source familiar with the matter told Nikkei that Apple has decided to reduce iPhone SE production by 20% below its original target for the June quarter. More than 10 million AirPods will no longer be manufactured in 2022, according to a report.
Before it was forced to issue a statement saying that its production and operations were going on as normal after the daily limit of 10% was exceeded, GoerTek’s “single largest customer,” which accounted for nearly half of its revenue in 2020, fell by the daily limit of 10%.
After being asked in an open investor relations session if one of its “big clients” had cut back on orders, Luxshare said its cooperation with clients remained “stable.”
Despite the fact that both companies’ stock prices rose on Wednesday, the Apple value chain in China, which has been disrupted by COVID-19 and growing geopolitical tensions, is still down about 30% in 2022.
When the southern Chinese city of Shenzhen imposed a strict lockdown to combat an infection wave caused by the Omicron variant of Covid-19, leading iPhone maker Foxconn Technology Group was forced to temporarily suspend operations at its Shenzhen factories. In the face of a labour shortage in China, its production facility in Zhengzhou, the largest iPhone assembly site in the world, has been offering bonuses and cash awards to attract workers.
As a symbol of China’s integration into global value chains, Apple’s extensive supply network on the mainland, from component suppliers to final assemblers, represents millions of jobs and economic performance. Nearly one-third of the newly-shortlisted companies from the Chinese mainland were included in Apple’s latest list of approximately 200 global suppliers published in 2021.
It has long been assumed that being an Apple supplier would guarantee steady profits, but this blessing could now be a curse, according to some analysts.
Electronic manufacturing services in China have reaped the benefits of joining Apple’s value chain, but they’ve also become trapped, according to Counterpoint Research analyst Ivan Lam, based in Hong Kong.
According to Lam, Chinese suppliers have suffered because of their reliance on Apple, making them more vulnerable to disruptions and risks at the US tech giant.
In the midst of escalating tensions between the United States and China over a variety of issues, Chinese manufacturers have previously found themselves at the mercy of Apple’s business decisions.
Apple’s cost-cutting measures had a negative impact on the financial health of several Chinese suppliers last year. A Shenzhen-based company, Oflim, estimates that it will lose 2.7 billion yuan in 2021 after being kicked off Apple’s supplier list in March of last year over allegations that it was involved in a government programme that transferred ethnic minorities from Xinjiang to work at the company’s factories.
As a result, Lam emphasised the importance of Chinese suppliers’ diversifying their clientele and expanding their business lines in the future.