Apple, Inc. (NASDAQ:AAPL), which was managing to churn out products and keep pace with the surging demand so far, may have hit a supply-chain roadblock with the protracted COVID-19 shutdown in China.
What Happened: China's "zero COVID" policy to curb the spread of the deadly virus has impacted the assembly operation of Pegatron, Apple's second-largest contract manufacturer, TFI Securities analyst Ming-Chi Kuo said in a tweet on Monday.
The Apple analyst noted that Pegatron has halted assembly in Shanghai and Kunshan. Even in the best-case scenario, it may not be possible for the company to resume production until late April or early May, he added. This is in contrast to the analyst's opinion in late March when he suggested the lockdown in Shanghai may not hurt iPhone SE production.
Hon Hai Precision Industry Co., Ltd. (OTC:HNHPF), Apple's largest iPhone assembler has not been affected, the analyst said, noting that it can pick up some of the slack from the production disruption at Pegatron.
If Foxconn continues to function without disruptions and Pegatron's shuttered operations come online gradually, Apple can scrape through with short-term and limited impact, Kuo said. The analyst sounded a positive note on Apple weathering the supply challenges, given its best supply chain management capabilities and its good relationships with the Chinese government.
If the lockdown stays longer, Apple will likely have to suffer from demand destruction stemming from the dent in consumer confidence in the second half of 2022, Kuo said.
Related Link: Here's How The Economics Of Hardware Subscription Can Boost Revenue For Apple
Why It's Important: With Apple gearing for multiple launch events for 2022, negative geopolitical developments such as these do not bode well for the company.
China is a key market for the tech giant. In the fiscal first quarter that ended in Dec. 2021, Apple derived roughly 21% of its revenues from Greater China, which includes mainland China. It was the fastest-growing geography, in terms of both year-and-year and sequential growth.
These disruptions are not expected to be reflected in the second-quarter results due later this month.
Price Action: Apple stock closed Monday's session down 2.55% to $165.75.
Related Link: Apple Becomes The Top Smartphone Vendor In China For The First Time In 6 Years
