An employee arranges Apple iPhones as customer shop at the Apple Store on 5th Avenue shortly after new products went on sale in Manhattan, in New York City, March 18, 2022.
Mike Segar | Reuters
Shanghai authorities have imposed stringent stay-at-home measures as mainland China faces its worst Covid outbreak since the initial phase of the pandemic in early 2020. Those government lockdowns, which began in late March, have threatened to disrupt global supply chains. And it shows the risks associated with Apple’s reliance on manufacturing in China.
Pegatron assembles about 20% to 30% of all iPhones, Nikkei Asia reported. The Taiwanese company had been able to continue production until now because the Chinese government allowed some manufacturers to keep operations going via a closed-loop system to reduce the chances of infections, Bloomberg reported.
“The Pegatron closures throws gasoline on the raging fire which is the supply chain for Apple and other parts of the iPhone ecosystem,” Wedbush analyst Dan Ives told CNBC in an email. “This is not the news the bulls want to hear as this amplifies supply chain issues for iPhones just as Apple was seeing an improvement.”
Shares of Apple closed up more than 1%, suggesting investors aren’t concerned about reports of a suspension of production.
It’s the latest hit to Apple, which just announced its slate of new products, including a budget iPhone. Last month, Foxconn, a major assembler of iPhones, suspended full operations. It has since “basically” resumed normal operations, according to Reuters.
Foxconn at the time said it would adjust its production line to other locations to minimize the impact. Almost 50% of iPhones are produced at a factory in Henan province, according to a Bank of America research note. But Pegatron’s only active iPhone manufacturing facilities are in Shanghai and Kunshan, according to Nikkei. Its new iPhone assembly plant in India has not yet started operations, according to the report.
Still, the June quarter is seasonally a “low point” for iPhone demand, Piper Sandler said in a note Tuesday. “In addition, we note most investors are already anticipating softness in these areas over the next several months. Overall, we continue to believe iPhone demand is transferrable and not destroyed.”
Apple declined to comment. Pegatron did not immediately respond to a request for comment.