This year, the stable supply of iPhone is threatened due to new complexities related to conducting American deals with Chinese partners. China’s “zero tolerance” policy towards COVID-19 and the escalation of the US trade war with China are forcing Apple to reconsider key aspects of its operations.
The recent COVID-19 outbreak in Zhengzhou, home of the largest iPhone assembly plant, prompted Apple on Sunday to announce that the company cannot fully meet demand for its smartphones during the holiday season. In addition, the company from Washington came under pressure – its Chinese partner YMTC came under US sanctions. In other words, if Apple used to play into the hands of its close ties with China, now they’ve literally become a liability.
While cooperation with China may have saved Apple from bankruptcy in the 1990s and was instrumental in its economic growth, such globalization now only hurts. Easing hygiene regulations in China could help the company make up some of the deficit, but it looks like it won’t be able to meet its winter holiday goals.
At the same time, Apple will find it difficult to generally reject cooperation with China. 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. Now, while Apple is trying to diversify production by moving some of it to India and Vietnam, we’re talking about factories that only employ tens of thousands of workers — an extremely small number compared to Apple’s. According to some reports, the company employs about 3 million people in China in one way or another.
The recent COVID-19 outbreak in Zhengzhou has severely curtailed the ability of the local Foxconn factory, which employs about 200,000 people, to produce the latest iPhone 14, including flagship models – there have been rumors of a critical situation at the factory : Restricted movement, food shortages, deaths from COVID and even workers fleeing production. It is not yet known when the facility will be fully utilized.
As a result, Apple had to warn investors that the pandemic situation in China will affect the level of sales of the company’s smartphones. Meanwhile, Washington began to pressure 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 iPhone component costs, and the failed collaboration with YMTC would allow Apple to save a lot. Not long ago, the company came under the scrutiny of American politicians, and according to some reports, Apple even helped them hire Western specialists to improve products. Apple later assured congressmen that it would only use the YMTC chips in smartphones destined for China. But as early as October, YMTC and 30 other Chinese companies were added to the list of companies banned 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 sanctions were imposed on YMTC, the media published data that Apple has renounced cooperation with this Chinese partner, although Apple itself declined to comment.