But no matter how bad the situation gets now, experts say the tech giant is unlikely (and perhaps unable) to disengage from China for the foreseeable future.
“There is no doubt that tech manufacturing wants to move out of China. They cannot afford the risk of continued disruption to supply, and they want to gain better control over their ability to serve customers,” said Lisa Anderson, CEO of supply chain firm LMA Consulting Group. “With that said, China’s scale won’t be easy to replicate, and so the transition will take time and require investment.”
Hard to match
Apple did not respond to requests for comment for this story, but Cook emphasized Apple’s broader manufacturing footprint on the company’s most recent earnings call. “Our supply chain is truly global, and so the products are made everywhere,” he said. “We continue to look at optimizing. We learn something every day and make changes.”
Bryan Ma, VP of device research at market intelligence firm IDC, said there’s been “increasing pressure to diversify product assembly outside of China, but doing so won’t be easy given that the proximity to component suppliers is a key reason for staying in China.”
“I’m sure that vendors will explore their options, especially as governments dangle incentives for local assembly,” Ma added. “But if the entire supply chain doesn’t move with them, then the logistics of moving components to the assembly facilities becomes a challenge.”
A major market
Complicating things further for Apple is the fact that China is its biggest market outside the United States.
Apple currently accounts for 18% of the Chinese smartphone market and China makes up nearly a quarter of Apple’s global sales, according to Amber Liu, a Shanghai-based smartphone analyst at tech research firm Canalys.
In short, China is “where a big part of the growth market is,” said Gad Allon, director of the management and technology program at the University of Pennsylvania whose research focuses on supply chains. “Apple has many, many reasons not to rock the boat,” he said, or risk ending up on the wrong side of China’s government.
Continued risks
Stringent Covid lockdowns aren’t the only potential disruption Apple could face in China.
“While the Covid lockdowns will force some companies to diversify their manufacturing locations, the zero-Covid policy will not permanently damage China’s status,” Paul Triolo, senior vice president at strategic advisory firm Dentons Global advisors, told CNN Business. A major escalation in Taiwan, on the other hand, “would be a much more important signpost in determining China’s future as a manufacturing hub.”
“Any disruption of Taiwan supply chains due to military confrontation would also have a huge impact on Apple’s operations,” he said.
For now, Apple seems to have no choice but to stay the course.
“China has been becoming more expensive for several years already, but what happened in the last year is it became more volatile,” said Allon. “Having said that, it’s impossible at this stage to find places that have the skills and the volume to be able to deliver what Apple needs.”
