Covid Zero could be bad for Apple

Hi, this is Debby in Taipei. Apple’s bet on China looks increasingly risky. But first...Today’s must-reads: Peter Thiel had some choice word [View in browser]( [Bloomberg]( Hi, this is Debby in Taipei. Apple’s bet on China looks increasingly risky. But first... Today’s must-reads: - Peter Thiel had some [choice words]( for Warren Buffet at the Miami Bitcoin conference - Tencent is shuttering its [game streaming service]( after a failed merger bid - Robinhood has rolled out its [crypto wallet]( What keeps Tim Cook up at night I was at dinner last Friday when a Taiwanese businessman told me the story of his trouble with Chinese roads. “The driver that’s helping deliver my coffee beans in southern China has now been stuck on the highway for five days,” he said. The delays were caused by widespread lockdowns and road closures intended to drive China’s coronavirus caseload down to zero. It’s a nightmare scenario for any business. But imagine, now, that that driver was carrying components for Apple Inc. Eventually, even Apple may not be immune to the logistical mess now afflicting parts of the country. Covid Zero policies have the potential to waylay the company’s hardware components, a scenario that could have rippling consequences, particularly during peak season when assemblers like Foxconn Technology Group and Quanta Computer Inc. need to secure all the components they can to make iPhones and Macbooks and ship the products. Despite Chinese President Xi Jinping’s [pledge]( in March that officials should reduce the economic impact from the country’s Covid Zero policies, China’s virus-curbing strategies have become unpredictable and volatile. For evidence, look no further than the sweeping lockdown of 25 million residents in Shanghai, which has [triggered]( food shortage concerns. It’s become clear that—as the country battles the virus—the economy has fallen far down Beijing’s list of priorities. Already, Foxconn has had to [halt]( operations at an iPhone production campus in Shenzhen for a few days in March. Foxconn’s smaller rival Pegatron operates a key iPhone assembly site in Shanghai, though it’s been able to continue making Apple handsets as the local government allows some manufacturers to keep their production lines humming with a closed-loop system. Persistent supply chain woes in China have added to other emerging headaches that Apple is facing in the country, including demand shocks and dark clouds hanging over the company’s lucrative App Store business. Taiwan Semiconductor Manufacturing Co. Chairman Mark Liu noted in March that China’s extensive lockdowns are hurting demand for PCs, TVs, and smartphones. And in September China’s top court effectively [granted]( consumers the right to sue Apple for alleged abuse of market power, making it more difficult for the California-based company to maintain its balancing act in a key market. Loup Funds Managing Partner Gene Munster recently [said]( he believes that China is what keeps Chief Executive Officer Tim Cook up at night. He also said that Apple is aggressively investing in the U.S. and elsewhere in Asia in order to shift some of its supply chain away from China. But wresting Apple’s supply chain free from China would be an immensely complicated task, and one that Cook hasn’t shown much appetite for. Chinese suppliers have seen their fortune rise within the Apple ecosystem over the past few years. Apple now relies on China’s Luxshare Precision Industry Co. for some AirPod and iPhone assembly work. And it’s [exploring]( including Hubei-based Yangtze Memory Technologies Co. as an iPhone memory chip supplier. The company has had massive success selling its products to Chinese consumers. At the same time, making things in China has long been a key way to keep costs down. Those things go hand-in-hand: It’s only natural for China to demand the use of a domestic supply chain for products what will be sold in the country. As Covid lockdowns persist and international tensions escalate, Apple will certainly still be doing business in China. Tim Cook may not be sleeping well any time soon. —[Debby Wu](mailto:dwu278@bloomberg.net) The big story It has become cliché to call Russia’s invasion of Ukraine “the first TikTok war.” But it’s still not clear what the deluge of user-generated content from the frontlines [means for TikTok itself](. What else you need to know An Amazon union vote in Alabama is [challenged again]( by a retail labor group. 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