China’s biggest chipmaker and a major iPhone supplier have cut their second-quarter outlook, joining a growing list of manufacturers warning of fallout from lockdowns aimed at containing the country’s worst Covid outbreak in two years.
Semiconductor Manufacturing International Co. estimates a month-long lockdown in Shanghai could spur component shortages and logistical entanglements and wipe out about 5% of its production in the second quarter. And Pegatron Corp. slashed its outlook for laptop shipments to a decline of between 5% and 10% from the first three months – down from previous forecasts of a 25% to 30% increase.
“We are doing our best to mitigate the impact on product delivery,” Gao Yonggang, chairman of SMIC, told analysts in a call Friday morning. “We are still assessing the real impact as many suppliers restart operations.”
China’s Covid Zero strategy, which relies on a playbook of closed borders, quarantines, lockdowns and mass testing, is upending its giant manufacturing sector even as the rest of the world lives with covid and opens up. The impact has been particularly marked in the eastern region around Shanghai, which is struggling to contain an outbreak. Hua Hong Semiconductor Ltd., another Shanghai-based chipmaker, also warned on Thursday of the potential impact of lockdowns and logistical disruptions.
Some bucked the trend. Hon Hai Precision Industry Co., whose main iPhone production base is further inland in Zhengzhou, expects revenue to remain unchanged this quarter. Like many companies, it has managed to keep its factories running by employing closed-loop production sites.
The minimum wage jumped as much as 3.1% in Hong Kong on Friday after it said its profits had more than doubled in the first three months, thanks to continued strong demand for chips used in everything from connected devices to vehicles. electrical.
But manufacturers’ pain could deepen if lockdowns persist or if global macroeconomic uncertainty saps demand for electronics.
While factories have been given special permissions to reopen under strict guidelines and systems, problems in the supply chain – from a shortage of delivery drivers to a lack of materials – continue to plague local operators. and global giants including Tesla and Sony. Apple predicted that supply constraints in China would cost between $4 billion and $8 billion in revenue in the current quarter.
And despite a drop in virus cases, the lockdown is intensifying as officials pursue the elusive goal of eliminating covid in the community.
Shanghai’s local government said it plans to achieve “no community spread” of the virus by mid-May, a crucial milestone that the city has eluded despite strict lockdown measures that have now extended to almost six weeks. The city of 25 million added more than 2,000 cases and two deaths on Thursday.
The covid pandemic in China as well as the war in Ukraine could also reduce global smartphone shipments by around 200 million units this year, SMIC co-director general Zhao Haijun said in the same call.
“The majority of the amount will be borne by Chinese smartphone vendors,” he said.