Apple has a huge problem with its supplier’s iPhone factory in China


hong kong
CNN Business

A violent uprising by workers at the world’s largest iPhone factory in central China this week further clouds Apple’s strained supply chain and highlights how the country’s tough zero Covid policy is harming to global technology companies.

The unrest began last month when workers left the factory campus in Zhengzhou, the capital of central Henan province, due to Covid fears. Short-staffed, bonuses were offered to workers to return.

But protests erupted this week when newly hired staff said management had reneged on promises. The workers, who clashed with security guards wearing hazmat suits, were eventually offered money to quit and leave.

Analysts said the woes facing Taiwanese contract manufacturing firm Foxconn, a major supplier to Apple that owns the facility, will also accelerate the pace of China’s diversification into countries like the United States. India.

Daniel Ives, managing director of equity research at Wedbush Securities, told CNN Business that the ongoing production shutdown at Foxconn’s sprawling campus in China’s central city of Zhengzhou was an “albatross” for Apple. .

“Each week of this shutdown and unrest, we estimate it’s costing Apple about $1 billion a week in lost iPhone sales. Now about 5% of iPhone 14 sales are likely off the mark in because of these abrupt shutdowns in China,” he said.

Demand for iPhone 14 units over the Black Friday holiday weekend was much higher than supply and could lead to major shortages before Christmas, Ives said, adding that the disruptions at Foxconn, which began in October , were a major “boost” for Apple. this trimester.

In a note Friday, Ives said Black Friday store checks showed major iPhone shortages across the board.

“Based on our analysis, we believe iPhone 14 Pro shortages have worsened significantly over the past week with very low inventory,” he wrote. “We believe that many Apple Stores now have iPhone 14 Pro shortages…or up to 25% to 30% below normal before a typical December.”

Ming-Chi Kuo, analyst at TF International Securities, wrote on Twitter that more than 10% of global iPhone production capacity has been affected by the situation at the Zhengzhou campus.

Earlier this month, Apple said shipments of its latest iPhone line would be “temporarily affected” by Covid restrictions in China. It said its Zhengzhou assembly plant, which normally houses some 200,000 workers, was “currently operating at significantly reduced capacity”, due to Covid restrictions.

The Zhengzhou campus has been battling a Covid outbreak since mid-October that has caused panic among its employees. Videos of people leaving Zhengzhou on foot are shown viral on Chinese social networks in early November, forcing Foxconn to multiply measures to recover its staff.

To attract workers, the company said it quadrupled daily bonuses for factory workers this month. A week ago, state media reported that 100,000 people had been successfully recruited to fill vacancies.

But on Tuesday night hundreds of workers, mostly new hires, began protesting the terms of the pay packages offered to them and also their living conditions. The scenes turned increasingly violent the next day as workers clashed with large numbers of security forces.

On Wednesday evening, the crowd had calmed down, with protesters returning to their dorms on the Foxconn campus after the company offered to pay newly recruited workers 10,000 yuan ($1,400), or about two months’ wages, to quit and quit altogether the website.

In a statement sent to CNN Business on Thursday after the protests ended, Apple said it had a team on the ground at the Zhengzhou plant, working closely with Foxconn to ensure employee concerns were addressed.

Even before the protests this week, Apple had started manufacturing the iPhone 14 in India, as it sought to diversify its supply chain outside of China.

The announcement in late September marked a major shift in its strategy and came at a time when U.S. tech companies were looking for alternatives to China, the factory of the world for decades.

The Wall Street Journal reported earlier this year that the company was looking to ramp up production in countries including Vietnam and India, citing China’s tough Covid policy as one of the reasons.

Kuo said on Twitter that he thought Foxconn accelerate expansion of iPhone production capacity in India following the Zhengzhou shutdowns and subsequent protests.

Production of iPhones at Foxconn in India will increase by at least 150% in 2023 compared to 2022, he predicted, and the longer-term goal would be to ship between 40% and 45% of these phones from India, compared to less than 4% now.

— Chris Isidore contributed to this report.

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