A display of iPhone 14 smartphones at the Apple Inc. Regent Street store in London, UK.
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Apple will take years to diversify from its Chinese factories, even as the country presses on with its zero Covid policy which is hurting iPhone production, according to Counterpoint Research’s Jeff Fieldhack.
“It will take years for Apple to diversify,” the research director told CNBC’s “Squawk Box Asia” Tuesday, explaining that Apple’s latest iPhones will likely continue to be built in China for the next few years.
In a statement on Sunday, Apple said that it temporarily reduced iPhone 14 production as its primary iPhone 14 Pro and iPhone 14 Pro Max assembly plant in Zhengzhou, China is operating at “significantly reduced capacity” due to Covid-19 restrictions.
Apple has been diversifying its device assembly process away from China and opening factories in countries south of China, such as India and Vietnam.
“Having said that, there are devices that could be assembled in other countries like India, but it is a very, very small amount,” he said.
Shares of Apple are down 20% so far this year.
Fieldhack suggests that the sheer number of workers Apple hires in China can potentially be used as a bargaining chip with the Chinese government, since the iPhone-maker hires about 200,000 staff at its Zhengzhou factory.
“Apple can say, ‘Hey, we have more employees in China than we have in the US’ That is very strong and really helps them avoid any of the China retaliations towards the US via tariffs or other decisions,” Fieldhack added.
Since the iPhone 14 models are popular and well-liked, he said, “we are expecting the vast majority of consumers to wait until these devices are available”, he said.
It currently takes 31 days to receive an iPhone 14 Pro after making an order via Apple’s website, as compared to the average 2-day lead time for less-expensive iPhone models, JPMorgan analyst Samik Chatterjee said in a note on Sunday.
Bullish on Apple
“The good news is Apple isn’t completely dependent on hardware. It has got a wide services portfolio and you are going to see its services amp up over time as it adds more services,” said Ray Wang, founder, chairman and principal analyst of Constellation Research.
“Now the challenge is if we keep having lockdowns in the Foxconn plant in Zhengzhou, we are in a little bit of trouble because you can’t get devices out to people, but people still want high-end iPhones and don’t necessarily want the lower-end phones,” he told CNBC’s “Squawk Box Asia” on Tuesday .
Counterpoint Research estimates a 10% decrease in production volume of mainly the iPhone 14 Pro and Pro Max models over the next couple of weeks, as a result of the disruption in Zhengzhou.
Fieldhack said he’s confidant Apple will do all it can to ship through as much as possible, by shrinking timelines in the supply chain or expediting shipping.
“There is time to make adjustments to factories affected, such as moving some of production to the south which has some manufacturing of Pro and Pro Max,” he said.