Half of Apple’s 200 top suppliers have facilities in and around Shanghai, where Covid-19-related lockdowns and traffic restrictions are disrupting a swath of business activities, a Nikkei Asia analysis has found.
More than 70 companies own manufacturing plants in Jiangsu province that directly supply the US tech group, according to an analysis of Apple’s latest available supplier list. The majority of these are in Kunshan and Suzhou, two cities near Shanghai. A further 30 or so Apple suppliers have facilities in Shanghai itself, the latest hotspot of China’s Covid surge.
These suppliers range from major iPhone assembler Pegatron and iPad maker Compal Electronics to makers of components such as displays, printed circuit boards, thermal parts, batteries and acoustic components.
The supplier list is normally released every year and covers 98 per cent of Apple’s spending on its products’ materials, manufacturing and assembly. The 2021 edition highlights how the financial hub of Shanghai is also becoming critical to the global tech and automotive supply chains.
Most of these suppliers, moreover, serve not only Apple but also other global tech giants, including Google, Microsoft and Intel, as well as domestic ones, such as Huawei, Xiaomi and Oppo.
Foreign and domestic businesses have warned that prolonged lockdowns could put China’s economic growth at risk and deal a huge blow to the automobile and tech industries.
Chinese authorities have taken notice. Vice-premier Liu He said this month the country would work to stabilise industrial development and supply chains, and instructed local governments not to block transportation for key logistics.
Local governments in Shanghai and Suzhou have also put hundreds of key electronics, automotive and medical suppliers on a so-called white list and said they will be able to gradually resume some manufacturing and logistics activities. But China is officially committed to a zero-Covid policy, and many suppliers with production facilities in the region fear it will take months for normal operations to resume.
“We think the impact is much more serious than the power outage last year as it involves a wide range of supply chains,” said Paul Peng, chair of AU Optronics (AUO), a key display maker, referring to government-mandated electricity rationing in the area in September last year. “The disruption is not to a single company or industry, it’s a global supply chain incident that could lead to a supply chain cut-off in the worst-case scenario,” he added.
AUO, which supplies HP, Dell, Asus and Tesla, operates production facilities in Kunshan and Suzhou. Peng said it would take “at least another quarter” before normal production resumed. “Some very basic materials such as carton boxes are in serious shortage. Truck drivers who are delivering all the materials and components are in great shortages too,” he said.
Delta Electronics, a leading maker of power management solutions, has been placed on Suzhou’s white list but could still see its production dented 20 per cent in April in a worst-case scenario.
“The situation in May and June should improve enough to offset the impact in April, but it will depend on the production resumption progress of the suppliers across the Greater Suzhou area,” said Cheng Ping, chief executive.
A source at a Japanese electronics component supplier to Apple told Nikkei its facilities in Suzhou had halted operations owing to severe logistics issues in Suzhou and Shanghai. Its own materials and component suppliers had also suspended production, the source added.
Ports and airports in Shanghai, meanwhile, are operating under stringent Covid-related controls and traffic restrictions, creating tremendous challenges for businesses, according to multiple logistics service providers and suppliers.
“The logistics in the Yangtze River Delta, including Shanghai, Suzhou, Kunshan, Taicang to Wuxi are basically stagnant. Even if people could travel with permits, it will be very [difficult] to arrange enough trucks,” one manager at a logistics company told Nikkei.
Some are already warning that the current chaos could affect this year’s holiday shopping season.
“May and June will be crucial for many consumer electronics brand vendors. If production does not ramp up in time for goods to be shipped via ocean cargo, there is a chance they could miss the Christmas holiday sales season in Europe and the US due to congestion at ports — unless they ship by air, which is much more expensive,” said one executive at an important HP supplier.
Ivan Lam, an analyst at Counterpoint Research, said the lockdowns would affect not only supplies and production but also demand.
“China likely will still continue its zero-Covid policies, as the vaccination rate among elders is quite low,” Lam said. “On the demand side, we see a substantial slowdown in China’s consumer spending since the lockdown in Shenzhen earlier this year. It’s likely that we could further revise down a couple of percentage points again for smartphone market expectations for this year.”
Apple did not respond to a request for comment.
A version of this article was first published by Nikkei Asia on April 20. ©2022 Nikkei Inc. All rights reserved.
