By Tyler Durden
Beijing’s decision to lock down 17.5 million people in China’s de facto ‘tech capital’ of Shenzhen is already creating serious problems for global supply chains.
Now, it appears that among the earliest casualties of this latest lockdown is the perennially popular iPhone. Because, as Bloomberg reports, Apple supplier Foxconn has been forced to scale back production at two sites used to make iPhones due to the lockdowns.
The firm is shifting production away from two campuses in the area to try and reduce the impact from the lockdown.
The Taiwanese company, also known as Hon Hai Precision Industry Co., has its China headquarters in the area and a key manufacturing site in Guanlan. It is suspending operations at the two campuses and has reallocated production to other sites to reduce impact from the disruption, the company said in a statement. Foxconn didn’t specify the length of the suspension. The measures from the Chinese government call for non-essential businesses in Shenzhen to halt until March 20.
But as at least one reporter noted on Twitter in response to the news, the shutdown risks creating a supply shock “on top of a supply shock” and leaving the Fed with little to no room to actually get inflation under control.
Supply shock on top of supply shock really does raise the question if there's anything the Fed will really be able to do to get inflation back under control at a price the economy can bear. https://t.co/maUidrMW5N
— Michael S. Derby (@michaelsderby) March 14, 2022
Foxconn hasn’t said how long the shutdown will last, but the government in Shenzhen has said that the closure for non-essential businesses will last at least through March 20. Shares of Hon Hai (the Chinese name for the company known Foxconn)for iPhones, closed 1% lower on Monday in Taipei.
Charles Shum, an analyst for Bloomberg Intelligence, said the move by Foxconn might not impact Apple’s main supply chain for assembling smartphones.
Hon Hai’s suspension of iPhone production in Shenzhen due to Covid-19 lockdowns may not affect Apple’s smartphone supply chain. Its main production hub in Zhengzhou hasn’t yet been affected by China’s latest virus resurgence and could help offset lost capacity. Lower seasonal demand may also provide a buffer to catch up on output. Hon Hai assembled 70% of the world’s iPhones in 4Q, IDC data shows.
Presently, Foxconn produces the majority of its iPhones at a plant in the central Chinese city of Zhengzhou, which has earned it the nickname “iPhone City.”
Meanwhile, back in Shenzhen, there are other reasons to worry about supply chain disruptions. The city is also home to one of the world’s largest container ports. Any disruption there could have a serious impact on global supply chain. Meanwhile, during a similar lockdown last summer, the Yantian port in Shenzhen was forced to shut down for nearly a week due to infections among its workers. This caused a massive backlog of goods that took months to finally clear. It also caused a spike in global freight rates.
Elsewhere in China, Volkswagen has suspended manufacturing at three of its plants in the country due to a lockdown in the city of Changchun.
Provide, Protect and Profit from what’s coming! Get a free issue of Counter Markets today.