Lyra Martin Tech 07.21.2022 05:Jul AM EDT

Chinese President Xi Jinping's Stern COVID Response Strikes Microsoft, Chipmakers

Lockdowns that compelled millions of people are already affecting companies like Texas Instruments Inc. and Microsoft Corp. that have profited from China's supply networks.

Businesses Suffered from Lockdowns in China

Businesses that have long profited from supply networks that pass through China, such as Microsoft Corp. and Texas Instruments Inc., are now paying the price for the nation's extensive lockdowns, which have forced millions of people to stay inside their homes.

Texas Instruments, a supplier of semiconductors to automakers and IT businesses, slashed its sales projection by 10% on Tuesday, July 19. Microsoft claimed existing lockdowns had hampered its performance, and more prolonged shutdowns would damage Xbox gaming systems and Surface laptops.

SK Hynix Inc. said Wednesday that any smartphone and computer industry revival depends on China's Covid-19 policy. Hynix has facilities in Wuxi and Chongqing and supplies Apple's Zhengzhou iPhone factory.

For decades, low-cost labor, a large home market, and accommodative government policies drew corporations to China. Tim Cook, CEO of Apple Inc., helped pioneer the China-centric approach by centralizing assembly in China using global components.

The Covid pandemic revealed unanticipated hazards from the method. Shipping prices rose when factories shuttered. Shanghai's lockdowns have compounded the problems, which may extend to Beijing. Xi Jinping's government has adopted a Zero Covid policy to curb the pandemic's spread.

Some others believed the lockdowns were hurting consumer spending. MediaTek Inc. executives informed investors on Wednesday (June 22) that the company was changing its expectation for global smartphone shipments from single-digit percentage growth to flat, at roughly 1.35 billion units.

MediaTek Inc. sells mobile processors to Samsung and Xiaomi Corp. They said that is caused mainly by a larger fall in China than first predicted.

China's tactics to wipe out Covid are rippling the world's No. 2 economy, putting Beijing's 5.5% growth goal in doubt. Uncertainty and inflationary pressures are projected to reduce consumer demand for smartphones, electric cars, and laptops.

China's industrial regulator vows to maintain the supply chain "unimpeded" after Xi's instruction to reduce the pandemic's economic effect.

Tesla Manufactured Fewer EVs in Second Quarter due to China's COVID 19 shutdown.

Due to manufacturing and supply chain disruptions caused by China's COVID 19-related closure, Tesla Inc. produced 17.9 percent fewer electric cars in the second quarter compared to the previous quarter.

The world's largest electric car manufacturer said it delivered 254,695 vehicles from April to June, down from 310,048 in the prior quarter and breaking a streak of almost two years of record quarterly deliveries.

Elon Musk, the company's CEO, informed executives at the beginning of June that he had a "very awful feeling" about the economy and would need to lay off around 10% of the company's workforce.

Tesla's Shanghai factory's manufacturing had to be temporarily halted because of an increase in COVID cases in China, which also impacted suppliers' locations there.

After Musk had warned about severe inflationary pressure on raw materials and logistics, Tesla once again increased pricing for several of its models in the United States and China in June.

With the COVID-19 lockdown being relaxed, Tesla is increasing production at the Shanghai facility, which will assist increase deliveries in the second half.