This year, the stable supply of the iPhone is under threat due to new complexities related to the conduct of American business with Chinese partners. The policy of “zero tolerance” for COVID-19 in the Middle Kingdom and the escalation of the US trade war with China are forcing Apple to reconsider the most important aspects of its activities.
The recent COVID-19 outbreak in Zhengzhou, home to the largest iPhone assembly plant, led Apple to announce on Sunday that the company would not be able to fully meet demand for its smartphones over the holiday season. In addition, the company came under pressure from Washington – its Chinese partner YMTC fell under US sanctions. In other words, if Apple used to play into the hands of close ties with China, now they have literally become a burden.
While cooperation with China may have saved Apple from bankruptcy in the 1990s and largely contributed to its economic growth, now such globalization is only hurting. Easing sanitary restrictions in China could help the company offset some of the shortfall, but it looks like it won’t be able to meet its winter holiday goals.
At the same time, it will be difficult for Apple to refuse cooperation with China in general. For about twenty years, local and Taiwanese partners have been building business in this country, focusing on growing orders from Apple, which has reduced the cost of manufacturing components and finished smartphones. While Apple is now trying to diversify production by moving some of it to India and Vietnam, we are talking about factories that employ only tens of thousands of workers – an extremely small number on the scale of Apple. According to some reports, in China, the company, one way or another, employs about 3 million people.
The latest COVID-19 outbreak in Zhengzhou has severely limited the ability of the local Foxconn factory, which employs about 200,000 people, to produce the latest iPhone 14, including flagship models – there were rumors of a critical situation at the factory: movement restrictions, food shortages, deaths from COVID and even the flight of employees from production. It is not yet known when the plant will operate at full capacity.
As a result, Apple had to warn investors that the situation with the pandemic in China will affect the level of sales of the company’s smartphones. Meanwhile, Washington began to put pressure on Apple’s Chinese partners.
One of the victims was the YMTC, with massive government involvement. According to some reports, memory chips account for up to 25% of the cost of components for the iPhone, and the failed cooperation with YMTC would allow Apple to save a lot. Not so long ago, the company came under the scrutiny of American politicians and, according to some reports, Apple even helped her hire Western specialists to improve products. Later, Apple assured congressmen that it was only going to use the YMTC chips in smartphones for China. However, back in October, YMTC and 30 other Chinese companies were put on the list of businesses that are prohibited from buying American technology. The new rules could limit the Chinese manufacturer’s ability to work with companies like Apple.
A few days after the imposition of sanctions against YMTC, the media published data according to which Apple refrained from cooperating with this Chinese partner, although Apple itself declines to comment on this.
