iPhone 14 Pro

Apple, the iPhone, and China: Short-term problems need a long-term fix

Apple’s iPhone production problems in China add another chapter to the breakdown of previous supply chain models, persistent political tension, and vulnerability to disasters; Everything has been underlined The need for diversification across every aspect of manufacturing to become more flexible.

Crisis management does not flinch

The impact of these challenges on Apple means that the company may have lost millions of iPhone sales in the current quarter. This is a challenge, but Apple is by no means unique in relying on a supply and manufacturing ecosystem that has proven less resilient than we need in these changing times.

Yes, for Apple, worker riots in China are not a good look, and the attempt to keep COVID-19 under control there has clearly failed, which could hurt us all. Certainly, the current mix of crises shows that the future of manufacturing must be multi-location and global.

Building the supply chain of the future

That’s why I think Apple, and I imagine every other company, will make plans to double or even triple manufacturing centers across its chains. This means that Apple and TSMC may make advanced processors At the new plant in Arizona while in the same time also Make chips elsewhere. They want multi-sourced strategic components – and Hardware assembly – To provide an impenetrable fortress against any future disasters. It will take time to create that kind of flexibility, but so does Apple On the fast track to putting this in place.

I also think that the need to build in such flexibility may be one of the reasons we are suddenly hearing that new products (Apple CarAnd the Apple Glass) to 2026 and late 2023, respectively, rather than the earlier dates discussed before. Apple will want to take some time Not just for product development, Doing so can be complicated, but also to develop more flexible manufacturing and supply chains, not to mention building increasingly circular manufacturing capacity. (An Apple Car you drive after 2026 may contain more recycled materials than anything else on the road.)

Change doesn’t come cheap

Almost all of this activity will translate into more expensive products. You can’t build a flexible, distributed, multiplier-efficient system a less flexible “just-in-time” system at the same price, which means your production costs will go up.

It’s not just the need to reconfigure supply chains. Prices will also rise as a result of inflation, the rising cost of energy, raw materials, logistical expenses, and the need for wage increases to keep up with inflation. But all of these are long-term issues with latency when a set of events occurred to test the strength of existing systems. Points of failure will be recognized and improved over time.

You need long term solutions to fix these things

At the moment, analysts warn that iPhone 14 sales will be affected by rates up to 20 million units deficit The following problems occur at Apple partner Foxconn’s iPhone production plant. These challenges have emerged in response to China’s COVID-zero policies, which may have been mitigated a bit now. However, the damage was done in the current quarter.

Morgan Stanley analyst Erik Woodring, in a note to clients, provided insights into the scale of the damage. It cut its iPhone estimate by 11%, but kept its estimate for the next quarter at 56.5 million units. He argues (unlike analyst Ming Chi Kuo) that most sales will be pushed back to the next quarter, but he now pegs shipments for the current quarter at about 75.5 million.

This is quite a conservative model, the analyst asserts, given that the company’s Great China Hardware team only estimates 1 to 2 million lost iPhone sales. Despite this, he cautioned that Apple’s December revenue could come in at 3% according to the consensus at around $120.3 billion.

Should Apple worry?

In the short term, we know the company is concerned because it once issued a rare warning to investors I realized how shaky things are. At the same time, he is also suffering Relatively strong demand Next to All hardware products While most competitors are seeing a decline. This effectively indicates that the company has the luxury of a loyal customer base and demand, and that will be what Apple tends to do as it goes.

Apple management has consistently articulated this approach over the years. Sure, it might get more disciplined in hiring, but it will Continue to invest in research and development And try to navigate the ocean of change towards any new product models that become relevant in the post-crisis era.

This is what the company has always done, and as nearly every organization finds itself having to navigate an increasingly complex headwind, Apple will show you how to implement Necessary change at work. Others will eventually follow.

why? Because they usually do.

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