Apple’s latest Chinese headache: Truck stops

“There are still a lot of hurdles, from labor shortages to logistics transportation.” — Nikkei Asian Review

From “Apple’s iPhone supply woes to continue into April: sources” posted Wednesday:

Apple will likely miss its schedule for mass producing a more affordable iPhone, while inventories of existing models could remain low until April or longer, despite suppliers in China gradually resuming production amid the coronavirus outbreak, sources familiar with the matter told the Nikkei Asian Review…

Logistics in particular are a major headache. In some cases, suppliers must change truck drivers when crossing provincial borders due to quarantine requirements on anyone entering from another province. In other cases, they have to send staff to highway interchanges to register for deliveries in person, while drivers bringing supplies into a province must present authorization papers at border checkpoints, industry people said.

Beijing has asked local governments to facilitate the restart of production and work to stabilize the economy and growth. Premier Li Keqiang said last week that the key focus is to gradually resume production and work in a safe way, but he also stressed that local authorities are strictly prohibited from blocking transportation or closing roads to prevent people from returning to work. Beijing is moving to quickly revive the slowing economy, which research agencies such as Citi predict will grow at just 5.3% this year, the slowest in decades.

My take: An army moves on its stomach, iPhones on Chinese highways.

See Bloomberg’s “Low-cost iPhone plans said to remain on track for March launch” for another point of view.

8 Comments

  1. Gregg Thurman said:
    Great photo of a Vietnamese border checkpoint.

    I don’t see internal transportation as an issue. Most Apple suppliers are located within close proximity to final assembly. UPS and FedEx maintain hubs at the assembly point, which, in many cases, are co-located with international airports.

    This is a FUD report for eyeballs (clicks) only.

    4
    February 19, 2020
  2. Gregg Thurman said:
    World indexes and Nasdaq pre-market aren’t responding negatively to this “report”. Nearly every major index is up about 1%.

    0
    February 19, 2020
  3. Gregg Thurman said:
    In times like these US currencies are a safe haven. If there is a continuing coronavirus drag on Apple/AAPL it will come from FX. The US$ is at its highest in the last year and a half being almost at par with the EURO. Of the major currencies only the Canadian, Australian and New Zealand dollars have gained against the UD$ today.

    A lot of the rush to the US$ will be expressed in foreign acquisition of US blue chip equities. AAPL is up in the pre-market.

    5
    February 19, 2020
  4. Jerry Doyle said:
    A friend of mine showed me yesterday at the gym his new iPhone midnight green Pro Max. He purchased it from a local carrier as the nearest Apple Store is 110 miles. I wonder just how long Apple’s iPhone inventories at retailers will hold-up. At some point there will be world-wide shortages to come. This absence of product offering should not be “demand destructive,” as individuals desiring a new phone most likely will wait until the backlog of demand is resolved. This is what Apple has going for it unlike other affected companies such as Starbucks with over 2,000 closed store unable to make up lost product sales. It’s also the reason the stock price is holding up.

    1
    February 19, 2020
    • Gregg Thurman said:
      It’s important to note that Apple doesn’t maintain much in the way of raw materials (JIT inventory management) waiting to be assembled. Instead, Apple tries to maintain a 6-week inventory of finished goods on hand and at its resellers at all times. So I wouldn’t expect to see outages until after the first of March, and probably closer to mid-March as renewed production ramps up.

      The worst I’m expecting is that Apple will finish the period with 1 – 2 weeks inventory from its usual 6 weeks. This will be an important item to listen to during the conference call in April.

      China’s short term demand may be down through April/May but delayed March quarter purchasing will be picked up in the June quarter.

      Whatever impact Apple experiences in the March quarter will be moved out to the June quarter (historically Apple’s weakest in terms of inventory demands). I expect normalcy to return before the end of June with September quarter guidance pretty much unaffected by this media circus.

      Launch inventory of new hardware products may be constrained a bit longer than usual, but by the end of the December period production will be cruising along as before.

      1
      February 19, 2020
      • Gregg Thurman said:
        Adding to the above I do not see sales/revenue from markets outside of China to decline materially throughout the “crisis”.

        Depleted channel inventory will not be a problem in China, only in markets outside of China, which will lessen the burden on Apple to refill it.

        All things considered, I’m expecting Apple to report revenue at or slightly above the bottom of its range guidance.

        1
        February 19, 2020
        • Gregg Thurman said:
          Adding again, I wonder how much discretionary income will accrue (waiting to be spent) in China during the forced lockdown.

          1
          February 19, 2020

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