Breaking apart is tough to do. Simply ask Apple. The iPhone maker has been attempting to cut back its dependence on China, its third most necessary market and the place the place most of its merchandise are assembled. It has already shifted the manufacturing of a few of its merchandise to Vietnam and India after coronavirus-related lockdowns precipitated huge provide chain disruption through the pandemic.
But the fact is the US’s most beneficial firm stays overwhelmingly reliant on the Asian nation. Beijing’s insistence on sticking to its zero-Covid coverage means Apple’s issues in China danger turning into a recurring function.
Video footage of staff from Foxconn, one in every of Apple’s most important suppliers, scaling fences to flee the manufacturing facility that they labored in — prison-break fashion — affords a well timed and vivid reminder of this.
The manufacturing complicated in Zhengzhou, often known as “iPhone Metropolis”, accounts for about 60 per cent of Foxconn’s iPhone meeting capability, based on analysts.
Foxconn mentioned it was ready to shift manufacturing to different crops. The disruption got here simply after Apple launched its new iPhone 14 and forward of the all-important vacation season. It may have an effect on greater than 10 per cent of world iPhone manufacturing capability, based on one estimate.
Take a look at Apple’s third-quarter outcomes and one may shrug off the newest provide chain woes. In an in any other case brutal earnings quarter for Huge Tech, Apple’s gross sales and income progress each topped estimates. However a piece of this progress was pushed by manufacturing bottlenecks that had delayed gross sales within the earlier quarter.
Rising labour prices, a slowing Chinese language economic system and rising tensions with the US over commerce and Taiwan give Apple loads of causes to cut back its reliance on China. To be truthful, Apple already will get a lot of its parts from elsewhere. However the overwhelming majority of its merchandise are nonetheless assembled in China
China’s dependable vitality grid and environment friendly transport infrastructure, to not point out the community of native suppliers, makes it significantly onerous for Apple to hold up on the nation.
Lex recommends the FT’s Due Diligence publication, a curated briefing on the world of mergers and acquisitions. Click on right here to enroll.