China's efforts to curb the spread of COVID-19 are causing widespread disruptions in transportation, manufacturing, and supply chains, with significant repercussions for global businesses. Among the affected companies is Pegatron Corp, an Apple Inc supplier, which announced the suspension of its plants in Shanghai and Kunshan. These facilities are crucial for producing various iPhone models, including the iPhone 13 and iPhone SE series.
Another major player in Apple's supply chain, Quanta Computer Inc, responsible for about three-quarters of Apple's global MacBook production, has also halted operations. Analysts warn that this could have a more severe impact on deliveries.
The overall impact on Apple's supply chain remains uncertain and hinges on the duration of the lockdowns. There are speculations that Apple might explore rerouting production to alternative locations, such as Shenzhen, which is currently not under lockdown.
Eddie Han, a senior analyst at Isaiah Research in Taipei, suggests that Apple may consider transferring orders from Pegatron to Foxconn, but the feasibility of this option is limited due to logistical challenges and equipment adjustments.
In a worst-case scenario, if the lockdowns persist for two months and rerouting orders becomes impractical, Pegatron could face a shortfall of 6 million to 10 million iPhone units, according to Han.
Despite the disruptions, Apple has not provided any official comments on the situation.
The CEOs of other major tech companies, including Huawei Technologies Co Ltd and Xpeng Inc, have also expressed concerns about significant economic costs if their Shanghai-based factories cannot resume production soon.
Shanghai is entering its third week of lockdown with no clear indication of a widespread reopening. Forrest Chen, a research manager at Trendforce, emphasizes that if lockdowns lift within a few weeks, there is a chance for recovery. However, if the lockdowns extend beyond two months, it could lead to shortages for end-users.
While some suppliers, like Unimicron Technology Corp, may be able to reroute production to other plants, nationwide logistics and transport challenges persist due to various Chinese cities implementing measures to control the spread of the virus.
Laptop manufacturers are also feeling the impact, with Taiwan-based Compal Electronics Inc, a producer of PCs for Dell Technologies Inc and Lenovo Group Ltd, facing potential disruptions from its Kunshan plants. Approximately 50% of Compal's laptop production is located in Kunshan, according to estimates from Forrest Chen.
Compal stated that it has not halted production in Kunshan, but Dell and Lenovo have not provided comments in response to inquiries about the situation. The evolving COVID-19 situation in China continues to pose challenges for companies operating in the region.
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