David Hanak In connection with the spread of the coronavirus in China, there has been a massive slowdown in production in recent weeks. This has affected all the big players who have located most of their production capacities in China. Apple is among them, and an analysis is currently underway of how this will affect the company's operations in the long term. However, South Korea is also not left out, where it is also produced on a large scale, especially some specific components.
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Jaromir Miko Over the weekend, news broke that LG Innotek will close its factory for a few days. Specifically, it's a plant that makes camera modules for all the new iPhones and who knows what else, and is located near the epicenter of the coronavirus in South Korea. In this case, it was not supposed to be a long-term closure, but rather a short-term quarantine, which was used for the complete disinfection of the entire plant. If information about this case is still current, the plant should be reopened later today. Thus, a few-day production stoppage should not significantly disrupt the production cycle.
The situation in China is somewhat more complicated, as there was a much more massive drop in production and the entire production cycle slowed down significantly. Large factories are currently trying to restore production capacities to their original state, but for understandable reasons, they are not succeeding too quickly. The company has reportedly been dealing with Apple's dependence on China since 2015. It started taking more concrete steps in this direction last year, when it began to partially move production capacities to Vietnam, or to India and South Korea. However, a partial transfer of production does not solve the problem much, nor is it actually entirely realistic. Apple can use production complexes in China with a capacity of almost a quarter of a million workers. Neither Vietnam nor India can even come close to that. In addition, this Chinese workforce has become qualified over the past years, and the production of iPhones and other Apple products works very stably and without major problems. If production is moved elsewhere, everything will have to be built again, which will cost both time and money. It is therefore not surprising that Tim Cook resists any more massive transfer of production capacities outside of China. However, it now appears that dependence on one production center can be a problem.
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Analyst Ming-Chi Kuo disclosed in his report that he does not expect the production capacity of Apple products in China to normalize during the 2nd quarter. At least until the beginning of the summer, production will be affected in a more or less serious way, which in practice will be reflected in the availability of currently sold products, possibly also in so far unannounced novelties. In his report, Kuo states that some components could be especially problematic, the production of which has been completely suspended and the stock is running low. As soon as a single element falls out of the entire production chain, the entire process stops. Some iPhone components are said to have less than a month's worth of inventory, with production resuming sometime in May.
