For the first time ever Apple is moving some iPad production out of China and shifting it to Vietnam after strict Covid-19 lockdowns in and around Shanghai led to months of supply chain disruptions.
The US company has also asked multiple component suppliers to build up their inventories to guard against future shortages and supply snags, sources said.
China’s BYD, one of the leading iPad assemblers, has helped Apple build production lines in Vietnam and could soon start to produce a small number of the tablets there, people with knowledge of the matter said.
Apple has long considered building some iPads outside of China, as reported by Nikkei Asia in January last year, but the sudden surge in Covid cases in Vietnam a few months later delayed plans to follow through.
The iPad will become the second major line of Apple products made in the south-east Asian country, following the AirPods earbud series. The move highlights not only Apple’s continuous efforts to diversify its supply chain but also the growing importance of Vietnam to the company. Apple shipped 58mn iPads last year, with the vast majority of the device’s suppliers concentrated in China.
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To further guard against supply chain disruptions, Apple has also asked suppliers to build up additional stocks of components such as printed circuit boards and mechanical and electronics parts, especially those made in and around Shanghai, where Covid-related restrictions have led to shortages and logistic delays. In addition, the company has asked suppliers to move quickly to secure supplies of some chips, especially power-related ones, for its upcoming iPhones.
In particular, Apple is asking suppliers outside of the lockdown-affected areas to help build up a couple of months’ worth of component supplies to ensure supply continuity over the next few months. The requests apply to all of Apple’s product lines — iPhones, iPads, AirPods and MacBooks — sources said.
Ideally, the company hopes these suppliers can prepare enough additional components to fully offset the amount made by those in Shanghai and nearby provinces such as Jiangsu, where the risk of supply chain disruption is higher, according to sources.
“For example, component supplier X has a 40 per cent share of Apple’s business in Jiangsu Province, which is a risky region of supply chain disruption, and supplier Y in another city accounts for the remaining 60 per cent share,” one of the people with direct knowledge of the matter said. “Apple would want supplier Y to build enough additional components to match supplier X’s 40 per cent share in the coming months in case production in Jiangsu is shut down again.”
It would be risky for any tech supplier to fully comply with Apple’s request, considering there are signs of slowing demand for consumer electronics amid looming inflation and rising energy costs, sources said. If Apple does not end up using the extra components, the suppliers could be left holding the bag.
“Those additional stocks prepared for Apple could become a heavy burden for suppliers if the production of other suppliers isn’t disrupted by lockdowns again,” another supply chain executive told Nikkei Asia. The executive added that most suppliers would agree to build some additional stocks as a buffer, but they will “definitely not” increase supplies enough to fully offset their rivals’ shares.
All of these moves show how hard Apple is working to reduce its supply chain risks, people told Nikkei Asia. The company has even helped some suppliers shoulder the additional logistics costs of airfreight and land transportation to ensure materials vital for production arrive on time.
Suppliers in Jiangsu Province and Shanghai have gradually resumed some production since early to mid-May, but most have said it could take at least a couple of months for manufacturing capacity to return to normal.
The local government in Shanghai said it would further open up the city — home to 28mn people — from June 1, with a focus on helping businesses return to normal operations.
“We will cancel all unreasonable restrictions for companies to resume working and production,” a statement by the government statement said. The government also said it would subsidise companies’ expenses for Covid prevention measures.
Ivan Lam, an analyst with Counterpoint, said he expected it would take until the second half of June for life to return to normal as the government avoided rushing things in its attempt to get life and work routines back on track.
“We still expect the impacts on big multinational companies like Apple to be controllable,” Lam told Nikkei Asia. “But the impacts on automotive, PC and some smaller Android phonemakers could be more severe as they have a more rooted supply chain there that they are not likely to find alternatives to very soon.”
Apple and BYD did not respond to Nikkei Asia’s requests for comments.
A version of this article was first published by Nikkei Asia on June 1 2022. ©2022 Nikkei Inc. All rights reserved