Apple suppliers warn that China energy disruption threatens supply chain

Manufacturers are warning that further disruptions to energy supplies in China would create havoc in the tech supply chain at a time when the industry is gearing up for peak production season, including that of the latest iPhones.

Several companies including key Apple suppliers have already said they have had to halt or reduce operations at facilities in Jiangsu province, China’s industrial tech heartland, after local governments restricted the supply of electricity for industrial use until the end of the month.

Cities in Jiangsu either told enterprises to stop using electricity entirely for the last week of September or set targets for manufacturers to reduce their energy use in the period by 10 to 30 per cent from usual levels, several tech industry executives told Nikkei Asia.

Those restrictions were introduced following Beijing’s warning that it would mete out stricter punishments to provinces that miss their annual energy consumption reduction and carbon-cutting goals.

The National Development and Reform Commission, the country’s top economic planner, issued warnings in mid-August naming numerous provinces — including several key industrial hubs of Jiangsu, Guangdong and Hubei — of using too much energy and failing to meet the country’s call to “control energy use and carbon emissions” in the first half of this year.

The measures have already hit a wide range of key suppliers to Apple, Tesla, Microsoft, HP and Dell, as well as disrupted production at the world’s top chip-packaging and testing suppliers to Qualcomm, Nvidia and Intel.

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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Now, companies ranging from chip and component makers to assemblers are warning that further energy disruption in October would create knock-on effects throughout the supply chain, as from September to November is traditionally the busiest period for tech manufacturers producing electronics for the holiday season. Missing this window for production not only risks supply chain continuity, but could also result in disappointing sales for electronic devices.

“We are currently reviewing the inventories for all the components and parts we have in stock. The situation is still controllable at the moment, but we fear it will happen again,” an executive of an iPhone supplier told Nikkei Asia. “It will be a huge disruption if we run out of inventory [in October].”

The production disruption could also worsen the already severe supply crunch that has hit the automotive and electronics industries.

ASE Technology Holding — the world’s biggest chip-packaging and testing service provider and a key supplier to Apple, Qualcomm, Nvidia and MediaTek — told Nikkei Asia that it had complied with the government’s energy-saving policies but had arranged shipments ahead of time to mitigate the impact on its customers.

King Yuan Electronics confirmed to Nikkei Asia that it was likely to suffer delays in providing services as the leading chip-testing service provider needs to operate under lower energy consumption.

Key iPhone assembler Pegatron, which operates large production sites in Kunshan and Suzhou, planned to reduce its non-essential power use to lower its overall electricity consumption by at least 10 per cent from September 31, according to a person with direct knowledge of the matter.

Many small and midsized enterprises have already felt the energy pinch.

“We also received a notice that electricity would be cut from September 25 through 28 every day from 8am to midnight,” a Dongguan-based electronics supplier told Nikkei Asia. “We could only ask our production-line workers to take night shifts to rush some products out.”

Other tech suppliers in Jiangsu said they had negotiated with local governments and agreed to cut their electricity use by at least 10 to 30 per cent in order to continue operating.

Manufacturers have adopted a range of measures to meet the restrictions, from idling production lines to reducing “non-essential” energy use and relying on existing inventory to fill orders in the short term, Nikkei Asia has learned.

Some companies are arranging for employees to work additional hours during the Golden Week holidays from October 1 to make up for the loss of production capacity in September, according to Nikkei Asia interviews with industry executives.

The power disruption comes as China pushes ahead with its goals to target climate change, having said its carbon emissions will peak by 2030. Chinese president Xi Jinping last month told the United Nations General Assembly that China would not build any more coal-fuelled power plants. The country’s ultimate goal is to reach carbon neutrality by 2060.

A version of this article was first published by Nikkei Asia on September 27, 2021. ©2021 Nikkei Inc. All rights reserved.

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