February 5, 2023

Apple has a big problem with an iPhone factory in China

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Hong Kong (CNN) — A violent protest by workers at the world’s largest iPhone factory in central China is further complicating Apple’s limited supply and highlights how the country’s strict zero-COVID-19 policy is hurting global tech companies.

The problems started last month when workers left the factory campus in Zhengzhou, the capital of central Henan province, fearing Covid-19. Short-staffed, workers were offered bonuses to return.

But the protests erupted this week when newly hired staff said management had broken its promises. The workers, who clashed with security officers wearing protective suits, were eventually offered cash to resign and leave.

Analysts said the problems facing Taiwanese contract manufacturing company Foxconn, a major Apple supplier that owns the facility, will also accelerate the pace of diversification from China to countries like India.

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

“Each week of this shutdown and riot we estimate is costing Apple approximately $1 billion a week in lost iPhone sales. It is now likely that approximately 5% of iPhone 14 sales are off the table due to these brutal lockdowns in China,” he said.

Security forces clash with workers during a protest outside the factory of Apple supplier Foxconn in Zhengzhou, China, on November 23. Reuters

Demand for iPhone 14 units over the Black Friday holiday weekend was much higher than supply and could cause major shortages before Christmas, Ives said, adding that outages at Foxconn, which began in October, have been a big “bump” for Apple this quarter.

In a note on Friday, Ives said Black Friday store checks show huge iPhone shortages across the board.

“Based on our analysis, we believe the iPhone 14 Pro shortage has gotten much worse over the last week with very low inventories,” he wrote. “We believe that many Apple Stores now have iPhone 14 Pro shortages… up to 25% to 30% below normal for a typical December.”

Ming-Chi Kuo, an analyst at TF International Securities, wrote on Twitter that more than 10% of the world’s iPhone production capacity was affected by the situation at the Zhengzhou campus.

Covid-19 outbreak

Earlier this month, Apple said that shipments of its latest line of iPhones would be “temporarily affected” by Covid-19 restrictions in China. It said its Zhengzhou assembly plant, which normally houses around 200,000 workers, was “currently operating at significantly reduced capacity” due to Covid-19 restrictions.

The Zhengzhou campus has been dealing with a covid-19 outbreak since mid-October that caused panic among its workers. Videos of people leaving Zhengzhou on foot went viral on Chinese social media in early November, forcing Foxconn to step up measures to get its staff back.

Workers at the world’s largest Apple iPhone factory in central China protest contract disputes amid virus checks on November 23.

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

But on Tuesday night, hundreds of workers, mostly new hires, began protesting against the terms of the pay packages being 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.

By Wednesday night, the crowd had calmed down and protesters returned to their dormitories on the Foxconn campus after the company offered to pay newly hired workers 10,000 yuan ($1,400), or about two months’ salary. , so they would leave the site entirely.

Opportunity for India

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

Even before this week’s demos, Apple had started manufacturing the iPhone 14 in India as it sought diversify your supply chain out of China.

The announcement in late September marked a major shift in its strategy and came at a time when American tech companies were looking for alternatives to China, the world’s factory 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 strict anti-Covid policy as one reason.

Kuo said on Twitter that he believed Foxconn would accelerate the expansion of iPhone production capacity in India as a result of the Zhengzhou lockdowns and resulting protests.

Foxconn’s iPhone production in India will grow by at least 150 percent in 2023 compared to 2022, he predicted, and the longer-term goal would be to ship 40-45% of those phones from India, compared with less than 4% that you have now.

Chris Isidore contributed to this report.





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