Supply chain worries heat up again as China shuts down factories to cool its citizens

Scorching weather sees scarce juice diverted to aircon instead of laptops and lithium

A heatwave in China has disrupted operations at laptop component makers and assemblers in Sichuan province and the municipality of Chongqing this week, creating the possibility of further problems in tech supply chains.

The closures were a result of power cuts ordered by China's government on Sunday. The Department of Economy and Information Technology of Sichuan issued notices of the power cuts, which prioritized residents' access to juice on an electrical grid strained by a heatwave.

Some measures to reduce power consumption have been in place in the area since late July. The recent government notice imparts stricter measures for industrial users between August 15th and August 20th in 19 area cities.

Sichuan is a hub for laptop manufacturing, and the production of lithium batteries used in electric cars and many mobile devices.

According to state-sponsored media, apple-supplier Foxconn claimed the power cuts will have only a limited impact on production. The company’s Chengdu factory, which is within Sichuan province, assembles Apple watches and computers. iPhones are made elsewhere in China, mostly in Zhengzhou and Shenzhen.

PC component suppliers Quanta, Compal and Inventec all also have factories in affected cities. The Reg has reached out to all three manufacturers and will update this story if any provide substantial information.

"Although it's difficult to assess impacts on production currently, impacts should be limited if the power outage can end on August 20,” said TF International Securities analyst Ming-Chi Kuo. “In addition, flexible production scheduling by assemblers should also help lower the impact of power outages. However, need to pay attention to whether similar incidents will occur again in the next few months and affect Apple's new product shipments during the peak season,” added Kuo.

Sichuan reportedly relies on hydro-electric generation to provide over 80 percent of its power, but drought have reduced output as demand for air conditioning soared to tame temperatures that have topped 100°F/38°C in recent days.

Earlier this year Chinese factories were forced to close for an entirely different reason – coronavirus outbreaks amid China’s pursuit of dynamic zero COVID. At that time, facilities were able to maintain production by employing a “closed loop” system whereby essential workers were housed onsite. That strategy is less applicable when factories can't power up.

At the time, Chinese tech execs warned of impending supply-chain chaos. By late July, Counterpoint Research clocked a historic year-on-year PC shipment decline. The market research firm attributed the drop to the lockdowns.

In June, Gartner forecast worldwide PC shipments would decline 9.5 percent in 2022, “the steepest decline of all device segments this year.”

Supply chain pain has been felt by the likes of Samsung, Nvidia and more.

It remains to be seen if this new round of shutdowns will produce similar problems. ®

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