Nikkei: Half of Apple's supply chain is deeply affected by the Shanghai epidemic, and smartphone demand may be further reduced

A recent analysis by the Nikkei Asian Review found that half of Apple's top 200 suppliers have factories in and around Shanghai, where recent epidemic control measures and resulting transportation and logistics restrictions are having an increasing impact on business and production activities.

According to an analysis of Apple's latest supply chain list, more than 70 companies have manufacturing plants in Jiangsu province that supply Apple, most of which are located in Kunshan and Suzhou near Shanghai. In addition, about 30 companies on the list have factories in Shanghai.

The above-mentioned suppliers cover areas ranging from Pegatron, the second largest iPhone assembler, and Compal, the main iPad assembler, to displays, PCBs, thermal components, batteries and acoustic components.

For example, acoustic component supplier AAC Technologies, electronic parts manufacturer Panasonic, and panel manufacturer Japan Display (JDI) all have factories in Suzhou, which has been affected by the epidemic. Shanghai has Pegatron and Quanta Computer, which assembles Macs. In addition to Pegatron, Compal, and Unimicron Electronics, Apple's suppliers in Kunshan also include Nanya Plastics and heat dissipation module manufacturer Sunho.

This supply chain list is usually released once a year and covers 98% of Apple's materials, manufacturing and product assembly. The 2021 version further highlights the importance of the Shanghai region to the global technology and automotive supply chain. Moreover, most of these suppliers not only serve Apple, but also global and domestic technology giants such as Google, Microsoft, Intel, Huawei, Xiaomi and OPPO.

Domestic and foreign companies have called for a prolonged blockade to put China's economic growth at risk and deal a huge blow to the automotive and technology industries. Liu He, China's vice premier, said on Monday that the country will work to stabilize industrial development and supply chains, and instructed local governments not to block transportation for key logistics. At the same time, the Ministry of Industry and Information Technology also released the first batch of "white lists" of key enterprises to ensure operation, concentrating resources to prioritize the resumption of work and production of 666 key enterprises in key industries such as integrated circuits, automobile manufacturing, equipment manufacturing, and biomedicine.

But current epidemic control policies have caused many suppliers with production facilities in the region to worry that it will take months to resume normal operations.

“We believe the impact is much more serious than last year’s power-rationing policy because it involves a wide range of supply chains,” Peng Shuanglang, chairman of panel supplier AU Optronics, told the Nikkei Asian Review. “The disruption caused by this is not targeted at a single company or industry, but a global supply chain event that could lead to supply chain disruptions in the worst case.”

AUO supplies HP, Dell, Asus and Tesla, among others, and has factories in Kunshan and Suzhou. He said it would take "at least another quarter" to resume normal production. "Some very basic materials, such as cartons, are in severe shortage. There is also a severe shortage of truck drivers to deliver all the materials and parts,"

Power solution maker Delta Electronics, despite being included in Suzhou's "white list" of companies, could still see a 20% drop in production in April in the worst-case scenario. "The situation should improve in May and June to offset the impact of April, but this will depend on the resumption of work of suppliers in the greater Suzhou area," said Zheng Ping, CEO of Delta Electronics.

Another Japanese electronic component supplier said that due to serious logistics problems in Suzhou and Shanghai, its factory in Suzhou has ceased operations, and its own material and parts suppliers have also suspended production.

At the same time, according to multiple logistics service providers and suppliers, Shanghai's ports and airports are operating under strict epidemic control and traffic restrictions, posing huge challenges to companies. "Logistics in the Yangtze River Delta region, including Shanghai, Suzhou, Kunshan, Taicang to Wuxi, is basically stagnant. Even if people can travel with passes, it is unlikely that enough trucks will be arranged," said a manager at a logistics company.

"May and June are critical for many consumer electronics brand suppliers. If they cannot increase production in time to ship goods via sea freight, they may miss the Christmas holiday sales peak season in Europe and the United States due to congestion at ports - unless they ship by air freight, the cost is much higher," stressed an executive at a major HP supplier.

Ivan Lam, an analyst at Counterpoint Research, said the lockdown would not only affect supply and production but also demand.

"China is likely to continue its zero-COVID policy as vaccination rates among the elderly are quite low," he said. "On the demand side, we have seen a sharp slowdown in consumer spending in China since the lockdown in Shenzhen earlier this year. We may again lower our expectations for the smartphone market by a few percentage points this year."