Apple supply diversification won't mitigate current Chinese lockdowns

iPhone 13 Pro models

In a note to investors seen by AppleInsider, JP Morgan analyst Samik Chatterjee analyzes recent news out of China concerning production halts and lockdowns at important Apple suppliers like Pegatron, Quanta, and Compal.

Earlier in April, officials in the cities of Kunshan and Shanghai implemented strict lockdown measures in response to an increase in Covid-19 cases. The lockdowns shuttered factories in the area, which is home to a number of Apple supply chain partners.

Pegatron, for example, assembles around 20% to 30% of iPhones at its Shanghai and Kunshan plants. Quanta is a key Mac manufacturer, while Compal is an important iPad supplier. The lockdowns affect all three.

While the lockdowns present short-term risks to Apple, Chatterjee notes that Apple's diversification from the Chinese supply chain is progressing. That will provide flexibility in the long run.

"While Apple remains one of the hardware companies most exposed to manufacturing in China, the company continues to make steady progress in relation to diversification from China with the recent ramp of production in India, with initial rollout of iPhone 12 now followed by iPhone 13 devices," the analyst writes.

However, the ramp is steady and will only provide Apple flexibility over the longer-term, Chatterjee said.

In the meantime, there are signs that the lockdowns are already affecting supply of Apple products like current MacBook Pro models. It isn't clear when the quarantine measures will lift, but the longer they persist, the more significant of an impact Apple will see on its supply of devices.

Analysts have added that some devices, like the iPhone SE, have yet to be affected because of lower demand during the June quarter.

For his prat, Chatterjee has also further cut his iPhone SE production expectations to below 20 million units. He says that's because of a combination of supply and demand risks from the macro environment, as well as the current geopolitical crisis.

Chatterjee is maintaining his 12-month Apple price target of $210, which is based on a profit-to-earnings multiple of 30x and a calendar year earnings estimate of $6.90.