Apple: COVID-19 will hit iPhone supplies

Apple has warned that COVID-related disruptions mean it will not be able to meet demand for iPhone 14 Pro and Pro Max, forcing customers to wait longer to get hold of the new smartphones and undercutting sales in the current quarter.

iPhone production hit by new lockdowns

The company confirmed this news in a short statement on Sunday. It’s unusual for a company to make statements on Sundays, suggesting Apple expects these events to impact its trading results, something it must disclose.

The news follows yet another massive COVID-19 lockdown around iPhone manufacturing in Zhengzhou, China. Workers at the plant have been seen jumping fences to flee the place, as they have not wanted to be locked up. China continues working to mitigate the spread of the disease.

Apple’s statement explains:v“COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China,. The facility is currently operating at significantly reduced capacity. As we have done throughout the COVID-19 pandemic, we are prioritizing the health and safety of the workers in our supply chain.”

Apple has the demand, but not supply

The company also said it continues to see strong demand for iPhone 14 Pro and Pro Max models.

“However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products,” it warned.

Foxconn, Apple’s partner who runs the factory, last week reduced its own Q4 outlook and said it is working to resume full production at its plant. It has around 200,000 workers at the iPhone factor and is recruiting more staffers to try to maintain production during the busy holiday season.

The scale of the problem manages to be both large and small.

Bloomberg claims Apple now expects to make 3 million fewer iPhones than it had anticipated. That’s a huge number. But when compared to the roughly.87 million the company was expected to make this quarter, the number equates to a little less than 3%. This will have some impact on company income, but means Apple is still going to be selling tens of millions of iPhones — and those it can’t ship this season will be sold in a subsequent quarter.

Change management at best

While it has been beset, Apple’s teams have managed excellently throughout the pandemic. While some products, principally iPads, have certainly been affected at various times in the last few years, the products have continued to ship, albeit at times a little later than usual.

Apple’s decision to issue a warning about its biggest-selling product must be seen as significant to shareholders, though deferred demand is likely to help inflate sales in the coming quarter. It should also be seen as significant to any business, as it suggests the scale and extent of the outbreak may have been  underestimated.

The new warning also signifies just how far we have come in the last few years. China has been the workshop of the world for generations, but the impact of the pandemic on global supply chains has been huge. This has been driving major companies, including Apple, to work towards diversifying their supply chains. But doing so takes time.

Supply chain resilience is the new ‘just in time’

It’s a race against time, in fact, as recent years have exposed the delicate fabrics that form the foundation of global economic activity. The need to diversify supply chains isn’t just important to the companies seeking to do so, but to global economic production and the maintenance of what we have come to understand as daily life.

Apple is working towards such diversification. In recent weeks we’ve learned of a multitude of new partnerships. The company is massively expanding its production facilities in India, as well as in Vietnam, Thailand and even Saudi Arabia, where it plans to open a logistics hub.

Analyst Ming-Chi Kuo recently explained that Apple is on a three- to five-year plan to diversify production outside China. Apple has been working furiously to build its position in India for the last few years, and it seems to be working with iPhones achieving record sales there last quarter.

However, while many of these plans have been announced, it will take time to put them in place, which is why problems at Apple’s largest iPhone factory leave the company at risk. In the future, big brands will need to multisource production across multiple nations, which will almost certainly introduce additional complexity in supply chain management.

This does not solely affect iPhones — pretty much anything currently made will need to be multi-sourced.

The times they are a-changed

This will be a huge opportunity for some, but will generate equally huge problems (and yet more price inflation) across every part of the economic chain. That Apple, which has managed the disruption well, has had to announce this challenge now should be seen as a new bellwether warning to logistics and supply chain operatives everywhere.

Change in business and production models is inevitable, and those who do not transform their internal operations today will be forced to do so tomorrow. To coin a phrase from one of the bards, “Your old road is rapidly aging.”

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