To guard itself against future shortages and supply snags, Apple has also asked multiple component suppliers to build up their inventories, as per the sources cited by Asia Nikkei. Plans of exiting China and moving its business into Vietnam were under consideration earlier as well, however, due to the sudden surge in Covid-19 cases in Vietnam a few months later, Apple delayed its plans.
This decision by Apple to move away from China reflects the company’s continuous efforts to diversify its supply chain. It also highlights the growing importance of Vietnam to the company.
In particular, Apple is asking suppliers outside the lockdown-affected areas to help build up a couple of months’ worth of component supplies to ensure supply continuity over the next few months. The requests apply to all of Apple’s product lines — iPhones, iPads, AirPods and MacBooks — sources said.
Ideally, the company hopes these suppliers can prepare enough additional components to fully offset the amount made by those in Shanghai and nearby provinces such as Jiangsu, where the risk of supply chain disruption is higher.
“For example, component supplier X has a 40 per cent share of Apple’s business in Jiangsu Province, which is a risky region of supply chain disruption, and supplier Y in another city accounts for the remaining 60 per cent share,” one of the people with direct knowledge of the matter said adding, “Apple would want supplier Y to build enough additional components to match supplier X’s 40 per cent share in the coming months in case production in Jiangsu is shut down again.”
Ivan Lam, an analyst with Counterpoint said, he expects it will still take until the second half of June for life to return to normal as the government avoids rushing things in its attempt to get life and work routines back on track, reported Asia Nikkei. India and Vietnam, which are already sites of Apple production, are among the countries being seen as an alternative option to China, a report added.
This move by Apple, being the largest US company by market capitalization, will influence the thinking of other Western companies which have been considering reducing their dependency on China for manufacturing or key materials in the wake of Beijing’s indirect support to Russia for its invasion in Ukraine and lockdowns in some cities to fight Covid-19.
According to analysts, over 90 per cent of Apple products including iPhones, iPads and MacBook laptops are manufactured in China by outside contractors.
Responding to Apple’s supply chain challenges in April, Chief Executive Officer Tim Cook said, “Our supply chain is truly global, and so the products are made everywhere. We continue to look at optimizing.”
The lockdowns imposed in Shanghai and other cities as part of China’s anti-Covid policy have disrupted the supply chain for many Western companies.
In April, Apple warned that the resurgence of Covid-19 will hinder sales by as much as USD 8 billion in the current quarter. China’s strict anti-Covid rules have stopped Apple from sending its executives and engineers into the country over the past two years, which means that it becomes hard for them to check the production sites in person. The power outages last year also dented China’s reputation for reliability.
first published:June 10, 2022, 9:35 p.m.
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