Apple suffers further supply chain setbacks in China

Hello everyone, this is Kenji. I don’t want to add to the gloom over the coronavirus outbreak, but it continues to dominate the news here in Tokyo, with various events being called off as the infection spreads. For Apple, it meant pushing back the release of its cheaper iPhone, while Samsung has resorted to flying phone parts to Vietnam to ease shortages. Despite the threat from the virus, Washington is keeping the pressure on Beijing as their technology rivalry intensifies and Chinese capital is funding more tech start-ups in India. Anyway, I hope you all stay well.

The Big Story — Exclusive

The coronavirus is playing havoc with Apple’s production schedules. The US giant is expected to miss its schedule for mass producing a more affordable iPhone, while inventories for existing models could remain low until April or longer, according to this exclusive in the Nikkei Asian Review. 

This article in the Financial Times throws further light on Apple’s issues. Non-local workers at Foxconn’s factory complex in Zhengzhou, where many iPhones are assembled, were told not to return to work following the outbreak. The complex employs 200,000 workers, many of whom come from outside Zhengzhou.

Key implications: A plan to start mass production of Apple’s affordable iPhone by the end of February now looks very challenging and may have to be shifted back to March. Apple had asked its suppliers to make 15m affordable iPhones during the first half of this year. 

“On average, suppliers in the iPhone supply chain are currently operating at around 30-50 per cent of capacity,” a source told Nikkei. “The constrained supply of iPhones will likely extend to April. There are still a lot of hurdles, from labour shortages to logistics transportation.”

Upshot: Apple has already lowered its forecast revenue for the January-March period. The full extent of the virus impact remains uncertain. Among Apple’s 200 top suppliers, about 75 per cent had at least one production site in China. 

Mercedes’ top 10

A round-up of the week’s best tech stories from the FT’s Asia tech reporter Mercedes Ruehl.

1. The US is considering a new wave of restrictions on Chinese tech. Also read this piece in the NYT on why that alarms rather than soothes US companies. 

2. The FT dives into an important shift taking place in India tech: two-thirds of the country’s start-ups valued at more than $1bn now have at least one Chinese VC investor.

3. John Reed in Bangkok and Song Jung-a in Seoul brought us a cracking scoop on how Samsung is physically flying phone parts to its factories in Vietnam as it grapples with the coronavirus.

4. British and other western universities are tying themselves in knots trying to appease both the US and China as the two superpowers fight for tech supremacy.

5. Alibaba gets an ‘F’ as it tries to promote online education to schools closed by the virus. Chinese students are venting their anger by giving Alibaba’s DingTalk app very bad reviews. 

6. India has mounted a last-ditch challenge to the US to rethink its stance on H-1B visas ahead of Donald Trump’s visit to the country this month. Lobby groups say the clampdown discriminates against Indian IT workers. 

7. ByteDance has appointed a new head of gaming, suggesting it is serious about taking on rival Tencent, which dominates the industry in China.

8. Central banks worldwide are researching digital currencies in response to Facebook’s Libra and China’s digital yuan. Some Asian countries have gone a step further with pilot projects, such as the National Bank of Cambodia. A nationwide rollout is expected as early as next month.

9. Sanofi is using AI to cut the turnover of its employees in China, where 30 per cent of sales staff leave each year. The French group has introduced algorithms to assess interns on their potential cultural fit with the organisation.

10. Imagine if waiters could work 24-hour shifts and carry around four tables’ worth of food. In Seoul, that is a reality for one Italian restaurant thanks to Dilly the Robot. “People love it, although they have to take their own food from Dilly’s trays,” said the restaurant’s owner. 

When sages speak

“You don’t get to do business in China today without doing exactly what the Chinese government wants you to do. Period. No one is immune. No one.” So begins one of the most searching essays written about the costs of doing business in China for a foreign multinational. Doug Guthrie, the author, was a senior director at Apple and was based in China from 2014-2019.

The arms race in space is becoming an increasingly pressing technological and geostrategic issue as explained in this comprehensive paper by Rajeswari Pillai Rajagopalan, Pulkit Mohan and Rahul Krishna for the Observer Research Foundation, an Indian think-tank.

The guys at GGV Capital have put out an interesting podcast with Vamsi Krishna of Vedantu, an Indian online tutoring company. It is really all about how to scale a personalised experience online in India and there are so many elements required to get that right.

Art of the deal

Japanese ecommerce conglomerate Rakuten said it sold $1.4bn worth of shares in its technology holdings, including its entire stake in US social networking service Pinterest, highlighting growing concerns about overvaluations in the sector.

The move came as Rakuten reported an operating loss of ¥40bn ($364m) in the final quarter of 2019. The proceeds are to be spent on its operational business in Japan, where the group is investing heavily in logistics to rival Amazon, and on its new mobile service.

Elsewhere . . . 

• GoJek, Indonesia’s most valuable start-up, has bought a minority stake in local taxi operator PT Blue Bird for $30m. The deal builds on the two companies’ existing partnership as GoJek tries to fend off rival Grab in its home market. 

• Tencent is revealing its growing interest in the Internet of Things (IoT). It participated in the Series C fundraising round for Guangzhou Leyaoyao, an IoT-focused start-up that helps operators get the most out of devices such as vending machines, massage chairs and washing machines.

In the spotlight

There is a new tech force underpinning professional football in Singapore. Forrest Li, the billionaire founder of gaming and ecommerce company Sea Group, has taken over Home United, now the Lion City Sailors. 

China-born Mr Li, who chose his first name while studying in the US after watching the film Forrest Gump, entered the ranks of Singapore’s richest individuals after listing Sea in New York in 2017, according to Forbes. 

But it is not the football deal that has caught the eye of Tech Scroll Asia. Sea shares, of which Li owns about 14 per cent, have risen more than 200 per cent in the past 12 months. The performance has outshone many Chinese tech companies including Alibaba and JD.com. Not bad for a company that has not turned a profit since its listing. 

Smart data

This chart reveals why big tech companies including Apple are sounding the coronavirus alarm. Despite all the rhetoric about US-China tech decoupling, China is the world’s largest exporter of electrical and electronic components — five times bigger than Germany. If the virus’s impact persists for several more weeks, the dislocation suffered by companies in the electronics sector could become intense. 

Regulation round-up

• Amazon and Walmart are pushing back on a proposed tax on third-party sellers on their platform by India’s government, adding their voices to the ecommerce sector’s concerns about the regulation. The possible 1 per cent tax on each sale made by sellers would take effect from April if approved next month. Reuters has more on the industry backlash. 

• Indonesia is proposing to make it easier for start-ups to hire foreign talent as its domestic tech sector struggles with a lack of engineers. The change is part of reforms that President Joko Widodo has put forward in a draft law on job creation.