Why China’s iPhone ban is bad news for Korea’s smartphone makers

Posted on : 2023-09-11 16:48 KST Modified on : 2023-09-11 16:48 KST
Korean mobile parts suppliers that do business with Apple are also bound to feel the effects of Beijing’s iPhone curbs
Shoppers peruse items at an Apple Store in Beijing, China. (AP/Yonhap)
Shoppers peruse items at an Apple Store in Beijing, China. (AP/Yonhap)

China has reportedly ordered public servants working for central government agencies to stop using foreign-made smartphones, including the Apple iPhone. The move seems aimed at countering the US-led effort to curtail China’s access to cutting-edge industries. It’s also likely to cause problems for Samsung Electronics and Korean companies that manufacture parts for mobile devices.

The Wall Street Journal quoted an anonymous source on Wednesday as saying that Chinese public servants on work-related forums had described receiving such orders from their superiors over the past few weeks. The newspaper described this as a cybersecurity measure intended to keep sensitive information from leaking out of the country.

It's not yet clear how far the ban on iPhone usage extends. The public relations office of China’s State Council, which represents the Chinese government, hasn’t offered an official position on the ban.

The ban amounts to a reprisal against the pressure campaign being waged against China by the US. On national security grounds, the US has kicked out 5G wireless equipment developed by Huawei, China’s leading telecommunications firm, and has also sanctioned video sharing app TikTok.

That has prompted the Chinese government to implement increasingly tougher countermeasures. In 2021, it restricted use of Tesla vehicles at the Ministry of National Defense and state-owned enterprises because of concerns about leaking classified information. Then last year, China ordered central government ministries and state-owned enterprises to replace personal computers made overseas with local products.

And now Beijing has taken aim at Apple, the darling of the US high-tech sector.

Some experts think China is attempting to boost its domestic smartphone sector. Huawei recently shocked the US government by releasing a smartphone with 5G connectivity despite the controls the US has imposed on high-tech exports.

The Chinese measures are expected to have serious ramifications for Apple, which saw its stock value fall by 3.58% Thursday. That was a nasty surprise for the tech giant, which is gearing up for the launch of the iPhone 15, its latest model, on Tuesday.

Hitherto, Apple has managed to largely keep its distance from the US-China feud for technological hegemony. Some contributing factors have been the fact that the factories that manufacture the iPhone are based in China and employ a large number of Chinese workers.

According to statistics by Counterpoint, a market research company, the iPhone was the biggest player in the Chinese smartphone market, with a 20% share, in the first quarter of the year. Apple depends upon the Chinese market for 19% of its total revenue.

And Apple has made a big effort not to get on the bad side of the Chinese government. “This has been a symbiotic kind of relationship that I think we both enjoyed,” Apple CEO Tim Cook said of Apple’s relationship with China while visiting the country this past March.

The Foxconn factory in the Chinese city of Zhengzhou that produces many of the world’s iPhones is Apple’s largest production base, employing a staff of 300,000.

After Apple’s supply chain was seriously disrupted by large-scale demonstrations by factory workers and by China’s lockdown during the COVID-19 pandemic, the company has been shifting the production of its newest products to India and Vietnam.

Even so, China continues to represent 30%-40% of Apple’s supply chain, leading some to think the Chinese government’s ban on foreign-made smartphones will push Apple to accelerate its move away from China.

All of that is bad news for Samsung Electronics and for Korean smartphone parts suppliers.

Samsung’s flagship Galaxy smartphones only represent about 1% of the Chinese market. But when the Korean tech giant released the latest products in its Galaxy Z line of foldable phones — the Flip 5 and Fold 5 — in July, it expressed the ambition to regain its standing in China. “We will equip our products with outstanding functionality in China and content that’s appropriate for the region,” a Samsung spokesperson pledged.

Considering that around 290 million smartphones are shipped each year in China, 1% of the market is still around 3 million smartphones — or 15% of the yearly total shipped inside Korea.

“While this measure is actually aimed at iPhones, it technically applies to all foreign-made smartphones. There are growing concerns that if the trend of ‘patriotic consumption’ stays strong in China, we could lose ground to domestic Chinese firms and have less room to work with,” an industry source said.

These developments will also impact Korean mobile parts suppliers that do business with Apple.

LG Innotek has an exclusive deal for supplying camera modules for the iPhone that accounts for 80% of its total sales. There’s also LG Display, which produces OLED panels, and BH, which supplies flexible printed circuit board.

LG Innotek and BH’s stock prices both tumbled, dropping 6.13% and 7.17%, respectively, from the day before.

“There are some projections that the Chinese government’s sanctions could end up slashing iPhone production by 10 million units. A blow to iPhone 15 production could undermine the performance and stock prices of Apple’s parts suppliers,” said Seo Sang-young, an analyst at Mirae Asset Securities.

By Park Byong-su, senior staff writer; Kim Hoe-seung, senior staff writer

Please direct questions or comments to [english@hani.co.kr]

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