China’s COVID Lockdowns May
Affect iPhone Shipments
May 23, 2022
Store at Union Square, the heart of San Francisco’s upscale tourist
district, had drawn more than 30 customers within a few minutes of
opening Friday morning. Visitors, couples and even a preschool-age boy
browsed the atrium packed with iPhone 13s and watches to try out. A sign
urged people to trade in old phones to save money on the 13s.
But a staff member could not say when the iPhone 14 would come out —
presumably sometime this year — or what it would cost. Some shoppers
wondered whether it would be delayed or cost more than expected given
the months of supply chain disruptions in China, where the phones are
“This stuff has got to hit hard at some point,” said Bill Kimberlin, an
Apple Store shopper from San Francisco.
Apple, based in the Silicon Valley, just 50 miles south of San
Francisco, outsources iPhone parts from around East Asia, and its
handsets are assembled in China.
Apple had to delay product rollouts first in 2020, when new gear was
held up for a month because of China’s first COVID-19 wave, said Rachel
Liao, senior industry analyst with the Taipei-based Market Intelligence
& Consulting Institute.
In the first quarter this year, she said, lockdowns in China suspended
assembly plants, including at least one operated by Pegatron. Pegatron
is the No. 2 iPhone assembler, with 25% of orders, after Foxconn. Both
companies are based in Taiwan but manufacture in China.
Since 2020, the costs of making the iPhone 12 and iPhone 13 series have
increased “slightly” because of a materials shortage in the
semiconductor supply chain, Liao said.
“Sharp and protracted lockdowns are causing a lot of short-term havoc on
logistics, and it’s obviously affecting delivery times significantly,”
said Ivan Lam, senior research analyst with market analysis firm
Apple declined to answer a query from VOA about its China supply chain.
Not just phones
Supply chain upsets set off by China’s lockdowns in the major commercial
hubs Shenzhen and Shanghai are slowing exports of products ranging from
phones to building materials to motor vehicles. Western nations are
experiencing shortages and higher prices imported goods.
Chinese authorities ordered Shenzhen shuttered in March, and Shanghai,
with a population of about 26 million, closed weeks later. Those
closures have kept workers away from factories, delivery jobs and
Cities are locking down as part of Chinese President Xi Jinping’s
“zero-COVID” policy, aimed at controlling deaths from the coronavirus.
“The impact of the COVID-19-related restrictions and lockdown there in
Shanghai is going to be severe on businesses, not just in China but
globally,” said Ker Gibbs, executive in residence at the University of
San Francisco and former president of the American Chamber of Commerce
“Shanghai is so important as a port and as a logistics hub, as a supply
chain, so that any business that is touching China is going to be
impacted by the lockdown,” Gibbs said.
COVID-19 cases in China, the world's largest consumer market,
“exacerbated” a drop in global mobile phone production in the first
three months of 2022, Taipei-based market analysis firm TrendForce said
in an emailed statement May 10. It says production volume worldwide was
310 million phones in the same period.
Jayant Menon, a visiting senior fellow with the ISEAS Yusof Ishak
Institute Regional Economic Studies Program in Singapore, calls demand
for China-made goods “uneven” — another cause for supply chain upsets.
He anticipates the disruptions will last for two more quarters.
“The quantities involved, I think, will clearly reflect the kind of
disruptions still ongoing in China because of their zero-COVID
strategy,” he said.
Strategies for smartphones
Smartphone supplies are holding up better than those of many other
China-made goods, analysts say.
Phone parts such as chips and screens are sourced from outside China;
for example, camera lenses are made in Taiwan, and flash memory is
produced in South Korea.
“These things are counted as exports from China, as if 100% of it were
made there, and in fact, a much smaller percentage is actually created
in China,” said Douglas Barry, vice president of communications at the
U.S.-China Business Council, an advocacy group in Washington with over
Apple now requires suppliers to increase inventories as it plans further
in advance for product launches, Liao said. That’s a hedge against more
supply chain problems.
The Silicon Valley icon is now asking its assemblers over the longer
term to cut reliance on China and raise orders for factories in India,
she added. Its chief assemblers — Foxconn, Pegatron and Wistron — will
continue to increase production capacity in India, she predicted.
Wistron is also based in Taiwan.
is diversifying further with assembly orders to China-based Luxshare
Precision Industry. Liao says that firm handles 3% of iPhone orders,
with the prospect of more this year.
Apple was the world’s No. 2-selling brand of smartphone after Samsung in
the first three months of this year, with an 18% market share and 56.5
million units shipped, according to market research firm IDC, up
slightly from the same period in 2021.
Some smartphone factories are using “closed-loop operations” to keep
production going in China, Lam said. Companies such as Foxconn have long
housed workers in factory compounds so large that some have compared
them to cities.
“At the end of the day, companies will assess their vulnerabilities and
adjust their supply chains accordingly,” Barry said. “It won’t be easy,
and consumers will feel their pain by having to wait and paying more for
products they want.”