China’s zero-Covid policy forces Apple to go for a backup supplier in India

• Apple Inc.’s Taiwanese contract manufacturer Pegatron Corp. has begun assembling the company’s latest iPhone 14 model in India.
• The move is caused by the abrupt Covid-19 lockdown at the key iPhone Pro manufacturing hub in the Chinese city of Zhengzhou, operated by Foxconn Technology Group.

It wasn’t too long after the iPhone 14 lineup was launched that Apple Inc started manufacturing it in India, through its main assembler Foxconn Technology Group. Although the vast majority of iPhones were still being made in China, the move was seen as part of Apple’s gradual diversification from China, as it looks to lower the risk of supply chain disruptions stemming from the country’s strict zero-Covid policy and tensions with the US. 

Unfortunately, the situation in China isn’t getting any better as the country recently announced a seven-day lockdown of the area around Foxconn’s main plant in Zhengzhou. The move, as anticipated, will  severely curtail shipments in and out of the world’s largest iPhone factory. Ever since then, the scenario has put a spotlight on Apple’s deep reliance on China, thus highlighting the importance of its diversification plans in place, such as the India and Vietnam expansion.

For now, there have been reports that Apple has picked another Taiwanese contract manufacturer Pegatron Corp. as its second supplier in India. In a report by Bloomberg, Pegatron has apparently begun assembling the company’s latest iPhone 14 model in its factory in India’s southern Tamil Nadu state. The factor, with 7,000 employees as of the end of September, also began making iPhone 12 handsets earlier this year. 

Pegatron generally gets orders for Apple’s entry-level models. Generally, with Prime Minister Narendra Modi’s financial incentives program, all of the biggest Taiwanese suppliers of Apple — Foxconn, Pegatron and Wistron Corp. — have ramped up iPhone assembly in India. That has in turn, helped to increase iPhone exports from the South Asian country.

Counterpoint senior analyst Ivan Lam however reckoned the one big hurdle for more production shifting out of China is that the majority of iPhone components are still built there and have to be shipped to wherever devices are assembled. Overall, experts are generally suggesting that Beijing’s Covid Zero approach is likely to further disrupt Foxconn’s main operations base, which cranks out an estimated four out of five of Apple’s latest handsets. 

As it is, Foxconn, whose main listed arm is Hon Hai Precision Industry Co., was already grappling with a Covid flare-up that forced some of its 200,000 staff into quarantine and pushed others to flee the facility — some on foot. 

Even with India, Apple expects a slower production

Just last week, Tech Wire Asia reported on the possibility of a holiday slowdown for Apple. Not too long after, the Cupertino, California-based company reaffirmed in a statement on Sunday that  “customers will experience longer wait times to receive their new products.” This is despite the fact that the company continues to see strong demand for the iPhone 14 Pro and iPhone 14 Pro Max models.

At the moment, deliveries of iPhone 14 Pro handsets are currently listed for late November or early December, according to Apple’s website. Apple said the facility is operating at “significantly reduced capacity,” while Foxconn noted in a separate statement that it’s lowering its fourth-quarter outlook to factor in the lockdown.

“Foxconn is now working with the government in a concerted effort to stamp out the pandemic and resume production to its full capacity as quickly as possible,” the Taiwanese company said in a statement. Overall, despite faring better than other smartphone makers, Apple backed off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, Bloomberg has reported. 

Although Apple has reported better-than-expected results, it still warned of a holiday slowdown.

---

---

---