Even though the Shanghai government announced plans to lift COVID restrictions on Wednesday and reopen the city after two months of lockdowns, Apple has decided to diversify some of its product supply chains out of China.
Nikkia Asia reports that some iPad production will be moved out of Shanghai and surrounding areas to Vietnam for the first time to safeguard against any future supply chain disruptions caused by Beijing's strict COVID restrictions.
Apple was already planning future iPad production lines in Vietnam. One of the top iPad assemblers, China's BYD, assisted the world's most valuable tech company in building production lines in Vietnam, with series production beginning in small numbers in the near term.
Apple has already shifted AirPods earbud production to the Southeast Asian country. The iPad would be the second major production line as the company diversifies out of China.
Besides diversifying its China-centric supply chain, the company has requested suppliers of components, such as semiconductor chips and mechanical and electronics parts based around Shanghai and surrounding regions, to quickly build inventory to mitigate supply chain disruptions for the upcoming release of the new iPhone.
In particular, Apple is asking suppliers outside of the lockdown-affected areas to help build up a couple of months' worth of component supplies to ensure supply continuity over the next few months. The requests apply to all of Apple's product lines -- iPhones, iPads, AirPods and MacBooks -- sources said.
Ideally, the company hopes these suppliers can prepare enough additional components to fully offset the amount made by those in Shanghai and nearby provinces such as Jiangsu, where the risk of supply chain disruption is higher, according to sources.
"For example, component supplier X has a 40% share of Apple's business in Jiangsu Province, which is a risky region of supply chain disruption, and supplier Y in another city accounts for the remaining 60% share," one of the people with direct knowledge of the matter said. "Apple would want supplier Y to build enough additional components to match supplier X's 40% share in the coming months in case production in Jiangsu is shut down again."
It would be risky for any tech supplier to fully comply with Apple's request, considering there are signs of slowing demand for consumer electronics amid looming inflation and rising energy costs, sources said. If Apple does not end up using the extra components, the suppliers could be left holding the bag.
"Those additional stocks prepared for Apple could become a heavy burden for suppliers if the production of other suppliers isn't disrupted by lockdowns again," another supply chain executive told Nikkei Asia. The executive added that most suppliers would agree to build some additional stocks as a buffer, but they will "definitely not" increase supplies enough to fully offset their rivals' shares.
Nikkei Asia reported in early April that semiconductor shortages were threatening the production of some MacBooks and iPads.
Now it appears Apple is working hard to reduce its supply chain risks; as Goldman Sachs' equity analyst Allen Chang points out, as Shanghai reopens, "we remain cautious on smartphone/consumer electronics supply chains."
Most sources told Nikkei Asia that manufacturing capacity in Shanghai could take at least a couple of months to return to normal levels.