When politics or production go haywire in China, Apple CEO Tim Cook most often takes the “grin and bear it” approach.
At this point, there’s little reason to suspect he’ll act any different amid China’s latest commotion.
In recent days, Cook and company have been predictably muted about revolts roiling the primary Apple iPhone assembly plant, where frustrated workers clashed with guards over strict COVID lockdown policies and unpaid wages. Strife at the Foxconn-operated facility appeared to calm by Thursday, though anti-lockdown protests raged through the streets of several Chinese metropolises over the weekend, a rare display of dissension in the authoritarian republic.
To date, Cook has not commented on either instance of upheaval, while Apple officials issued a statement saying they are “working closely with Foxconn to ensure their employees' concerns are addressed.”
The relative silence from Apple officials follows mounting reports of significant financial losses tied to the Foxconn turbulence, which could cost the company billions of dollars this quarter.
Bloomberg reported Monday that a source familiar with operations at the Foxconn facility estimated a production shortfall of 6 million iPhone 14 Pros this year, primarily due to the tumult. Apple initially aimed to produce about 90 million iPhones this year.
Meanwhile, Wedbush Securities analyst Dan Ives tweeted Monday that Apple’s iPhone sales could take a 5% to 10% hit this quarter from the Foxconn furor. For context, Apple reported $71.6 billion in iPhone sales during last year’s holiday quarter.
"The zero China Covid policy has been an absolute gut punch to Apple's supply chain, with the Foxconn protests in Zhengzhou a black eye for both Apple and Foxconn,” Ives wrote in a client note.
Apple shares slipped 2% in mid-day trading Monday, and they’re now down 4% in the past week.
The reluctance to comment at length about the chaos in China might frustrate human rights and labor advocates, but it speaks to Apple’s lack of palatable business options in responding to such rifts.
Apple and its suppliers remain inextricably intertwined with China, where roughly 95% of iPhones are assembled. As covered here in September, it could take Apple decades to fully wean itself off iPhone production in China—though timeline forecasts vary by analyst.
Apple leaders could quietly lobby Chinese authorities to ease up on zero-COVID protocols, but any such move by President Xi Jinping could be seen as caving to the rebellion. And as Bloomberg columnist Matthew Brooker wrote Sunday, “Xi’s instincts are to be uncompromising in dealing with any challenge to the party’s grip on power.”
While Apple could forfeit billions of dollars this quarter as a result of China’s COVID policies, it’s a small price to pay for longer-term peace with the Chinese government.
Apple finds itself caught in the middle of mounting friction between American and Chinese political leaders, with the former taking aggressive steps to handicap the latter’s technological advancement. Cook certainly won’t want to further inflame those tensions over a tiny fraction of Apple’s $400 billion per year business, nearly 20% of which comes from Chinese customers.
Remember, too, that Apple in 2016 pledged to invest $275 billion in China over five years to ingratiate the company with Chinese authorities, according to tech news site The Information, making this quarter’s losses look like a pittance.
“Apple has many, many reasons not to rock the boat,” Gad Allon, director of the management and technology program at the University of Pennsylvania’s Wharton School, told CNN.
The recent uprisings should sharpen Apple’s focus on diversifying its supply chain, an effort gaining some steam in Cupertino. In recent years, Apple officials have shifted some iPhone, MacBook, and accessories production to India and Thailand, albeit a small sliver of assembly operations.
In the meantime, Cook and his team will have to muddle their way through China’s COVID discombobulation. For a company that feasted for years off of China’s cheap labor, this disquieting quarter is the cost of doing business with autocrats.
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Jacob Carpenter
