Apple could lose billions from China’s COVID chaos—and there’s not much Tim Cook can do about it

At this point, there’s little reason to suspect he’ll act any differently 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 owing 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 midday 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 China’s cheap labor, this disquieting quarter is the cost of doing business with autocrats.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Busy time for bankruptcy lawyers. Prominent cryptocurrency lender BlockFi filed for bankruptcy Monday, adding to the fallout from the spectacular collapse of crypto exchange FTX. The filing arrived three weeks after BlockFi suspended withdrawals in the wake of the debacle at FTX, which gave a $275 million lifeline to the struggling lender earlier this year. BlockFi officials said they hope to restructure the company, which has more than 100,000 creditors and $257 million in cash on hand.

Challenged by China. Twitter grappled Sunday with an onslaught of spam apparently designed to drown out posts showing Chinese protesters rebelling against the republic’s COVID policies, the Washington Post reported. The deluge marked an early test of Twitter’s ability to handle a complex campaign aimed at manipulating the platform following mass layoffs that wiped out roughly two-thirds of the company’s workforce. Researchers said the rush of spam overwhelmed posts showing the protests Sunday morning, but the problem abated somewhat later in the day.

Anything but taboo. Yahoo is buying a 25% stake in digital advertising firm Taboola, an ambitious purchase that signals the early internet giant’s interest in expanding its ad-tech capabilities, the New York Times reported. The deal gives Yahoo, now owned by the private equity firm Apollo Global Management, the ability to use Taboola’s technology to further build out its ad business, while Taboola expects to earn hundreds of millions of dollars from an ad licensing agreement. Yahoo officials said they believe the partnership will set up the outfit for long-term success following a recent downturn in ad sales growth.

A privacy penalty. A top European regulator fined Meta about $275 million Monday in response to a massive hack of Facebook last year, the Wall Street Journal reported. The punishment, handed down by Ireland’s Data Protection Commission, followed the theft and publication of 500 million–plus Facebook users’ personal information. Irish regulators have fined Meta three times in the past 15 months for privacy-related violations, with the sanctions totaling more than $900 million.

FOOD FOR THOUGHT

Hurting the brand. Twitter’s relationship with many big-name advertisers is in shambles—and Elon Musk isn’t helping. The Financial Times reported Saturday that ad industry insiders are increasingly disillusioned with the Twitter owner, some of whom voiced frustration with his decisions to slash marketing teams and berate CEOs pulling their spending on the platform. Ad executives were initially charmed by Musk, who pledged to provide a hospitable ecosystem and showed deep knowledge of the site. However, his erratic behavior online and decision to eliminate more than half of all corporate positions has unnerved companies that helped drive $4.5 billion in Twitter ad revenues last year. Musk’s decision Monday to tweet a meme featuring Pepe the Frog, a popular symbol among members of the alt-right and white supremacists, couldn’t have helped.

From the article: 

Multiple top advertising agencies and media buyers told the Financial Times that nearly all of the big brands they represent have paused spending on the social media platform, citing alarm at Musk’s ad hoc approach to policing content and decision to axe many of its ad sales team.

Musk, meanwhile, has sought to personally call chief executives of some brands that have curbed advertising in order to berate them, according to one senior industry figure, leading others to instead reduce their spend to the bare minimum required so as to avoid further confrontation with the billionaire entrepreneur.

IN CASE YOU MISSED IT

Alex Cooper’s raunchy ‘Call Her Daddy’ podcast reaches millions of listeners and earned the 28-year-old a $60 million deal. Now Spotify needs to keep its top female creator satisfied, by Alexandra Sternlicht

Musk announces Twitter’s newest verification plan—now with gold checks, by Alice Hearing

Half of Twitter’s top advertisers have fled Elon Musk’s platform. They’ll have a tricky time migrating to Mastodon, an emerging alternative, by David Meyer

‘Russia’s Google’ wants to sell its Russian businesses and flee the country with its most promising tech, by Nicholas Gordon

Mark Cuban says he’d ‘be afraid of going to jail for a long time’ if he were Sam Bankman-Fried, by Steve Mollman

The mining industry can’t ignore a startup’s solution to a decades-old copper problem: ‘The potential is enormous,’ by Thomas Biesheuvel and Bloomberg

Tesla is recalling 81,000 cars in China for seat belt and software problems, by Bloomberg

BEFORE YOU GO

Teach a dog new tricks? My wife and I have a 3-year-old black Lab mix, Cooper. Great dog. Sweet, patient, mostly well-behaved. But Cooper is not a mental giant. “Forrest Gump-ian,” she says. So perhaps we’d be the right clientele for Joipaw, a new digital platform that, among other things, features a video game promising to help “unleash your dog’s cognitive potential.” Axios reported Monday that the console includes interactive puzzle games for your pooch, with treats dispensed for successful strategies. Joipaw also tracks your pup’s health data, measuring steps and naps throughout the day. The company’s Hong Kong–based developers hope to build their company into “Apple Health, but for dogs.” At least for Cooper, probably best to let sleeping dogs lie on this one.