After the abolition of the zero-COVID policy in China, the rapid spread of COVID-19 infection is expected to hurt Apple’s profitability. Experts predict that Apple’s net profit will fall by 8% this quarter.
“Apple will be affected by absence from work due to COVID-19 infection not only at production plants in China but also throughout warehouses, distribution, logistics, and transportation facilities,” said Vindya Bakil, CEO of Resilinc Group, a market research firm that analyzes global supply chains.
According to the analysis, Apple’s sales this quarter will fall below $123.9 billion achieved during the same period last year, and its net profit is expected to fall 8 percent during the period. This is based on the forecast that there will be a shortage of at least 5 million to up to 15 million iPhones in China. If this outlook becomes a reality, Apple will end its sales growth for 14 consecutive quarters.
Currently, Apple is significantly dependent on China, with about 90% of its total iPhone production assembled in China and about 20% of its sales coming from sales in China. Key Apple suppliers such as Foxconn, Pegatron and Wistron are moving to relocate their production bases to India, but they are still in their early stages. Currently, only 7-8% of iPhone production is assembled in India.
On the other hand, Samsung Electronics withdrew its mobile phone production facilities in China after its Huizhou plant in Guangdong Province in 2019 and diversified into four countries, including Vietnam.
Apple’s supply chain crisis is expected to continue for the time being. Horace DeNiu, an analyst at global consulting firm Asymco, said, “If the policy safety net is minimized with low immunity to COVID-19, Chinese consumers may be reluctant to spend on a large scale next year,” adding, “Apple’s production problem could be prolonged due to the demand crisis from China.”
Alan Day, chairman of State of Flux, a supply chain consulting firm, predicted, “Other countries have developed emergency work standards due to the spread of COVID-19, but China has not made such a move,” adding, “The next two to six months will be a decisive moment for Apple’s supply chain.”
Tesla’s production in China has also been disrupted. Earlier, Tesla decided to stop production of its Shanghai plant until January 1st next year. Considering that the Shanghai plant operated normally in the last week of December last year, Reuters judged that a number of employees recently stopped operating due to COVID-19.
Since the Chinese government shifted its quarantine policy to “With Corona,” COVID-19 infections have recently increased rapidly in China, with hundreds of thousands of new confirmed cases per day in each city.
