Apple/China: intricate supply chain makes hanging up hard to do

Breaking up is hard to do. Just ask Apple. The iPhone maker has been trying to reduce its dependence on China, its third most important market and the place where most of its products are assembled. It has already shifted the production of some of its products to Vietnam and India after coronavirus-related lockdowns caused massive supply chain disruption during the pandemic.

Yet the reality is the US’s most valuable company remains overwhelmingly reliant on the Asian country. Beijing’s insistence on sticking to its zero-Covid policy means Apple’s problems in China risk becoming a recurring feature.

Video footage of workers from Foxconn, one of Apple’s main suppliers, scaling fences to escape the factory that they worked in — prison-break style — offers a timely and vivid reminder of this.

The manufacturing complex in Zhengzhou, known as “iPhone City”, accounts for about 60 per cent of Foxconn’s iPhone assembly capacity, according to analysts.

Foxconn said it was prepared to shift production to other plants. The disruption came just after Apple launched its new iPhone 14 and ahead of the all-important holiday season. It could affect more than 10 per cent of global iPhone production capacity, according to one estimate.

Look at Apple’s third-quarter results and one could shrug off the latest supply chain woes. In an otherwise brutal earnings quarter for Big Tech, Apple’s sales and profits growth both topped estimates. But a chunk of this growth was driven by production bottlenecks that had delayed sales in the previous quarter.

Rising labour costs, a slowing Chinese economy and growing tensions with the US over trade and Taiwan give Apple plenty of reasons to reduce its reliance on China. To be fair, Apple already gets many of its components from elsewhere. But the vast majority of its products are still assembled in China

China’s reliable energy grid and efficient transport infrastructure, not to mention the network of local suppliers, makes it particularly hard for Apple to hang up on the country.