Because of the ongoing challenges in China, Apple has notified suppliers to lower the production of components for MacBook, Apple Watch, and AirPods in Q1, 2023. The tech giant’s fourth quarter ended in September 2022 and the first quarter of 2023 ended in December 2022.
According to Nikkie Asia, the tech giant had told suppliers to reduce the orders in the December quarter because of weak demand and China’s troublesome zero COVID policy. A manager at one of the company’s suppliers told the publisher:
“Apple has alerted us to lower orders for almost all product lines actually since the quarter ending December, partly because the demand is not that strong. The supply chain in China is still trying to cope with the latest abrupt policy turns, which brought a shortage of laborers because of the sharp COVID surges.”
China’s new COVID policy won’t help Apple’s supply chain in 2023
In March 2022, China faced a new wave of COVID-19. As part of its zero-COVID policy, the country faced multiple lockdowns which adversely impacted the production capacity of manufacturers in the country. It was reported that OEMs like Apple were diversifying their supply chain outside China to improve their supply and mitigate the effects of the country’s policies.
Although China changed its zero-COVID policy of mass testing and quarantines in December 2022 to salvage the plummeting economy, the country is now facing a labor shortage because of the virus which could hamper manufacturers’ plans to resume full capacity.
An executive at an electronic component maker that supplies Samsung, Apple, and several Chinese smartphone makers told Nikkei Asia:
“It’s very chaotic. The new wave of COVID surges spread super fast, and most companies found it already makes no sense to quarantine their employees.”
In addition to a labor crisis, slow consumer demand is also impacting production.
Chief economist for Asia Pacific at Natixis, Alicia Garcia Herrero predicted a “noticeable” impact on manufacturing from the opening up. “However, it might not last too long if most major cities manage to peak by the end of Chinese New Year,” she added. “In a nutshell, I believe a lack of external demand will be an even more important factor for China’s manufacturing sector in 2023.”
Therefore, Apple’s iPhone assembler Foxconn is now offering bonuses to attract new and retain existing workforce. Apple’s iPhone 14 Pro supply has already been affected by China’s COVID policy this Holiday season.
Foxconn’s complex in Zhengzhou, the world’s biggest iPhone-making site, suffered a labor shortage following a COVID outbreak in late October. Now it is offering bonuses of up to 14,000 yuan ($2,013) and asking employees to refer more recruits.