Apple Suppliers Given Priority for Factory Restarts in Shanghai Region

Apple suppliers Inc.

AAPL -3.66%

are among the companies leading the way in local governments’ efforts to restart factories in the Shanghai region as the US tech giant, which faces supply constraints, warned that the resurgence of the pandemic in China could dent sales .

Covid-19 outbreaks have hit Shanghai and neighboring Jiangsu and Zhejiang provinces in the past month — a region with one of the highest concentrations of Apple’s top suppliers, according to the company’s supplier list released last year.

In Shanghai, 31 companies have manufacturing facilities that supply Apple, while there are 79 in Jiangsu and seven in Zhejiang, the list shows.

When Shanghai went into lockdown and nearby regions imposed strict Covid prevention measures, many suppliers stopped production, with several weeks of shutdowns.

As the economic pain from the policy mounts, China is pushing to resume factory operations in an effort that has been gradual and at times bumpy so far. In Kunshan, a city in Jiangsu about 50 kilometers west of Shanghai, the local government released a list last week identifying several major Apple suppliers, including Luxshare Precision Industry Co. and Wistron. Corp.

as “Covid-free” enterprises, giving them priority to resume production.

Factory workers in Foshan, China, wore masks on site in February 2020. Resurgent Covid-19 cases in the country have led some factories to create bubble-like environments to keep running.


Photo:

Alex Plavevski/Shutterstock

China’s central government has vowed to help restart factories, including Taiwan-based manufacturers. “We will continue to work with the relevant authorities to actively help Taiwanese companies to overcome the effects of the pandemic and to help them resume production and operation as soon as possible,” said Ma Xiaoguang, a spokesman for China’s Taiwan Affairs. Office, Wednesday. Many Apple suppliers are located in Taiwan.

The impact of regional disruptions on Apple depends on how quickly and widely its suppliers can resume operations. The company warned Thursday that supply constraints due to pandemic disruptions would hurt revenues by as much as $8 billion in the current quarter. Apple did not immediately respond to a request for comment.

Chief Executive Tim Cook said on Thursday that Apple’s restrictions were mainly centered around the Shanghai corridor. The company’s estimate of as much as $8 billion in affected sales reflects the various ramps needed to get production back on track, he said.

“On a positive front, almost all affected final assembly plants have now restarted,” said Mr Cook. “We are also encouraged that the number of Covid cases reported in Shanghai has decreased in recent days.”

Beijing races to test more than 20 million people as residents rush to stock up on food. WSJ’s Jonathan Cheng shows what life is like in the capital and unfolds the likely ripple effects if officials can’t control the rapidly spreading virus. Photo: Kevin Frayer/Getty Images

Apple’s supply chain restrictions had improved in the first three months of the year, Cook said. Bernstein Research analyst Toni Sacconaghi estimates that the effect hurt sales by $1 billion to $2 billion during the period, compared with $6 billion to $7 billion during Christmas shopping in the last three months of 2021.

Due to the uncertainties, Apple has not provided a revenue forecast for the current quarter ended June, although some analysts interpret the company’s comments to indicate sales would remain flat from $81 billion a year ago. For Thursday, analysts forecast, on average, sales would rise 6% to $86.4 billion, according to FactSet.

In recent days, some Apple suppliers have been restarting factories in bubble-like environments where workers are kept in factory buildings or nearby and are regularly tested for Covid. The model has become more and more popular in China to continue production during outbreaks.

UniMicron technology Co.

, a major supplier of printed circuit boards in Taiwan, said on Thursday it had resumed some production in Jiangsu. Earlier this month, UniMicron had resumed operations at one of its subsidiaries in Kunshan for just one day when authorities asked it to stop operations to comply with local Covid prevention policies, the company said.

Quanta computer Inc.,

a top MacBook assembler also based in Taiwan resumed some production at its factory in Shanghai on April 15, the state-run Xinhua News Agency reported last week. There, about 2,000 of the more than 40,000 employees returned to make products, including laptops for Apple. According to Xinhua, who quoted a factory director, that number would rise to about 6,000 workers by the end of April. A spokeswoman for Quanta declined to comment on the current status of resumption.

A strict lockdown policy to contain a Covid-19 outbreak in Shanghai cleared a lane in late March.


Photo:

ALY SONG/REUTERS

The number of Covid-19 cases in Shanghai seems to have fallen in recent days and the number of cases in Jiangsu has fallen. On Friday, Chinese health authorities reported 10,463 new nationally transmitted infections for the previous day, after adjusting for previously reported asymptomatic cases that later became symptomatic. Almost all new infections were in Shanghai.

While Beijing’s rising number of cases has raised concerns it could face a shutdown, Apple’s supply chain has limited exposure to the capital and nearby regions. Eight companies that supply to Apple have production facilities in Beijing and the surrounding area, according to the supplier list.

Elsewhere in China, Foxconn Technology Group has maintained production at its largest iPhone assembly plant in the central Chinese city of Zhengzhou, even though the district where it is located has been partially closed since April 15, the company said.

Foxconn has also followed the bubble-like system, it said, keeping tens of thousands of workers and other personnel in or around the factory. They must undergo regular Covid testing — at least 15 rounds have been conducted — and Foxconn has set up 88 testing sites on its sprawling campus, it said.

The district government is helping Foxconn receive and ship the necessary materials and products, while imported components and materials must undergo Covid testing before they can be delivered to the factory, the company said. Foxconn will release its first quarter results on May 12.

The magnitude of the impact of China’s recent Covid outbreaks on the global electronics supply chain is becoming clearer as suppliers release quarterly results.

Chipmaker STMicroelectronics NV lost two weeks of production at its factory in Shenzhen, South China, in the first quarter due to a lockdown there, Chief Executive Officer Jean-Marc Chery said in a conversation with investors this week.

Texas Instruments Inc.

cut its second-quarter revenue outlook by about 10%, citing logistical issues due to China’s Covid restrictions. The maker of analog semiconductors used in automobiles and electronics has been unable to ship products from its distribution centers to customer factories in China, especially those in the Shanghai area, it said in an earnings call this week.

write to Yang Jie at jie.yang@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

www.wsj.com

Leave a Reply

Your email address will not be published.