Apple opened its 54th Greater China flagship store in the city of Wuhan in May. The iPhone company warned in late April that supply chain disruptions from China’s Covid controls would likely hurt current-quarter sales by $4 billion to $8 billion.
Sopa Pictures | Light flare | Getty Images
BEIJING — Apple’s supply chain has a better outlook than Android’s when it comes to recovering from the shock of China’s latest Covid controls, Credit Suisse analysts said in a report this week.
Shanghai, a port city in a high-end manufacturing region, began reopening on June 1 after about two months of lockdown to control a surge in Covid cases. Nearby towns have also suspended operations intermittently to control the spread of Covid.
“Global hardware production could gradually return to normal levels in June/July, with better prospects for Apple’s supply chain than Android, while semiconductors would see more demand issues than supply issues. “said Edmond Huang, research analyst at Credit Suisse, and a team in a press release. report Monday.
“Our checks suggest that the iPhone 14 build schedule remains the same, but initial production will be smaller, which may be due to some model production delays or parts/chip shortages,” the report said. report. “We expect overall production orders for new models to remain similar to last year, but final production volume may vary in the event of a supply disruption.”
Apple did not immediately respond to a CNBC request for comment. Greater China, including Hong Kong, accounts for approximately 19% of the company’s sales.
Apple: “More flexibility”
Last week, iPhone supplier Foxconn said the impact of Covid controls in China was not as severe as expected and the company’s full-year outlook was better than previously expected. beginning of the year.
Foxconn, also known as Hon Hai, said operations were normal in major production areas in mainland China, where the company has more than 30 sites. However, Foxconn said, given that the Covid situation is expected to persist, the company plans to improve its ability to operate in a bubble.
Local authorities in China have allowed manufacturers to operate in Covid-restricted areas if factories keep workers on site. However, the companies said travel restrictions prevented trucks from transporting parts between factories and customers.
“We believe that Apple’s supply chain has greater flexibility compared to Android, because the key [Apple] assembler Hon Hai has a highly diversified capacity allocation,” Bank of America analysts wrote in April.
Only 5% of Hon Hai’s capacity is in the eastern city of Shanghai and neighboring Jiangsu province, and 10% to 20% in the “Greater Bay Area” around Hong Kong and Shenzhen, officials said. analysts, noting additional capacity in two other regions. of China, as well as abroad.
Foxconn did not immediately respond to a CNBC request for comment.
Android: more concentrated in China
By contrast, 80% of Android’s production capacity is in the Greater Bay Area and eastern China, particularly in Shanghai and Suzhou in Jiangsu province, according to the Bank of America report. .
Android is an open source mobile operating system developed by Google which is the basis for many popular Chinese smartphone brands such as Oppo and Xiaomi.
But analysts at Bank of America and Credit Suisse said the biggest problem for Android vendors is their reliance on the Chinese market and declining domestic demand for smartphones.
Smartphone shipments fell 18% in mainland China in the first quarter from a year ago, worse than an 11% global drop, according to Canalys, which noted that the Chinese market underperformed for nearly of three years.
Apple maintained 17% year-on-year growth in mainland China shipments for the quarter, while brands like Oppo and Vivo, which held a larger market share, saw shipments fall 44% and 34%, respectively, Canalys said. Honor, a Huawei spin-off, saw shipments triple in the first quarter from last year’s low base.
“The outbreak of the Omicron variant COVID-19 and strict lockdowns in major cities from February cast a shadow over the consumer market, which has yet to recover from last year’s weakness. “Canalys analyst Toby Zhu said in a statement. “In response to sudden retail store closures and logistical delays, sellers need to take a more cautious approach to inventory allocation, which will inevitably affect short-term sales.”
– CNBC’s Michael Bloom contributed to this report.
