On Wednesday, the Shanghai government announced plans to eliminate COVID restrictions and reopen the city after a two-month lockdown.
However, Apple has opted to shift some of its supply chains away from China. Nikkei Asia reports that some iPad manufacturers plan to move production from Shanghai to nearby countries like Vietnam.
This will be the first time Apple has changed production to protect against supply chain interruptions caused by Beijing’s strict COVID restrictions.
Apple has already been preparing for future iPad production lines in Vietnam, and small-scale production could begin soon, thanks to a partnership between Apple and BYD, a leading Chinese iPad assembler.
After diversifying away from China, the iPad will be the second major line of Apple products made in Vietnam. AirPods production has already moved to the Southeast Asian country.
In addition to broadening its China-based distribution network, Apple asked component suppliers to quickly increase inventory in preparation for the iPhone 14, rumored to be released in the fall of this year. Supply continuity could be maintained over the next several months if Apple providers outside the lockdown areas can manufacture enough parts to make up for the lack of production in China.
It is risky for tech vendors to comply with Apple’s request, given indicators of a declining market for consumer devices, increasing inflation, and higher prices. If Apple does not use the additional components, suppliers could be left responsible.
Counterpoint analyst Ivan Lam said that he expects it will take another two weeks for operations to return to normal as the Chinese government carefully tries to get its economy back on track.
Lam told Nikkei Asia, “We still expect the impacts on big multinational companies like Apple to be controllable. But the impacts on automotive, PC and some smaller Android phone makers could be more severe as they have a more rooted supply chain there that they are not likely to find alternatives to very soon.”
In early April, Nikkei Asia reported that iPad and MacBook production was postponed because of component shortages. Apple is working hard to eliminate these supply chain risks. According to Nikkei Asia, Shanghai’s manufacturing capacity could take at least a few months to get back to normal.