Apple braces for supply disruption from coronavirus
Apple’s China-centric manufacturing base is at risk of disruption after the Lunar New Year holiday as the company’s partners confront the coronavirus outbreak that has gripped the country and caused more than 100 deaths.
Virtually all of the world’s iPhones are made in China, primarily by Foxconn’s Hon Hai Precision Industry at its so-called iPhone City in Zhengzhou and by Pegatron Corp. at an assembly site near Shanghai. Each of those locations is more than 300 miles away from Wuhan in central China, the epicenter of the viral outbreak, but that distance doesn’t immunize them from its effects.
“I can’t imagine a scenario where the supply chain isn’t disrupted,” said veteran industry analyst Patrick Moorhead of Moor Insights & Strategy. “If there’s one major hiccup in the raw materials, fabrication, assembly, test and shipping, it will be a disruption.”
Chief Executive Officer Tim Cook tweeted over the weekend that Apple “will be donating to groups on the ground helping support all of those affected” by the virus.
Apple has been increasing production to meet higher-than-anticipated iPhone demand, Bloomberg News reported last week. The company typically launches its new high-end iPhones around September, so the virus is unlikely to have meaningful impact on those plans; however, the company is also preparing to begin mass production of a new low-cost iPhone in February, which is more at risk.
Apple has roughly 10,000 direct employees in China, across its retail and corporate entities. Its supply chain also has a few million workers manufacturing products like the iPad, iPhone and Apple Watch. Many of those employees have been home the past few days for the holiday, and the company hasn’t said if it is asking them to stay home for longer to prevent the virus spreading. Chinese authorities have imposed severe travel restrictions and taken the drastic step of quarantining the entire city of Wuhan, a population of more than 11 million.
“Supply chain disruption is a worry if employees across Foxconn and other component manufacturing hubs in China are restricted,” said analyst Dan Ives of Wedbush Securities Inc. “If the China outbreak becomes more spread it could negatively impact the supply chain which would be a major investor worry.”
An Apple spokeswoman declined a request for comment. Foxconn said it is monitoring the situation in China and following all recommended health practices. It declined to comment on production in specific locations but said, “We can confirm that we have measures in place to ensure that we can continue to meet all global manufacturing obligations.”