Daily Management Review

Coronavirus Outbreak In China Could Hit Supply Chain Of Apple


Coronavirus Outbreak In China Could Hit Supply Chain Of Apple
The rapid spread of the coronavirus in China that has killed more than 100 and spread to large parts of the country have severely affected the supply chain partners of iPhone maker Apple that, analysts say, has the potential to disrupt the China-centric manufacturing set up of the company after resumption of work after the Lunar New Year holiday.
According to reports, almost all of the iPhones are manufactured in China. The main contractor for production is the Foxconn Technology Group – which was previously known as the Hon Hai Precision Industry. It is the largest electronics contract manufacturer of the world. It makes iPhones at the so-called iPhone City in Zhengzhou.
Another large vendor of the iPhones in China is the Pegatron Corp which manufactures the phones at an assembly plant near Shanghai. Those production centres are more than 500 kilometres from Wuhan in central China – which is the epicenter of the viral outbreak. However, analysts see that distance of the two production plants not to be a deterrent to a threat from the coronovirus.
“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.”
That could be crucial for Apple because, according to a Bloomberg News report last week, the iPhone maker is ramping up production of the phones to meet the anticipated higher than expected demand. But analysts also said that there will not likely be any significant impact of the virus outbreak on the plans of Apple for new iPhone launch because it typically is done by the company in September. 
What is more that risk are the reported plans of the company to start mass production of a new low-cost iPhone sometime next month.
There are about 10,000 employees who work directly for Apple in China – primarily at the retail and corporate offices of the company. There are an estimated few million people who work in the supply chain companies of Apple who make products such as the iPad, iPhone and Apple Watch.
“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. “If the China outbreak becomes more spread it could negatively impact the supply chain which would be a major investor worry”.
No response from Apple was available in the media.
Foxconn is closely watching the situation in China and implementing all recommended health practices, the company said in response to the reports. “We can confirm that we have measures in place to ensure that we can continue to meet all global manufacturing obligations,” it said.
Reports have said that there is a rise in the number of cases being reported from China’s Henan province – the region where Foxconn’s Zhengzhou factory is situated. That could result in the company or the local authorities there being forced to close down the facilities in order to check on further spreading of the virus.