Apple’s supplier in China has a major problem at its iPhone factory

Hong Kong
CNN Business

A violent worker revolt at the world’s largest iPhone factory in central China this week is further straining Apple’s tight supply chain and underscoring how the country’s strict zero-Covid policy is hurting global tech firms.

Trouble began last month when workers left the factory campus in Zhengzhou, central Henan province, over fears of Covid. Short staffed, employees were offered bonuses to come back.

But protests erupted this week when new hires said management had reneged on its promises. Workers who clashed with security guards wearing hazmat suits were eventually offered pay to quit and leave.

Analysts said the challenges faced by Foxconn, the Taiwanese contract manufacturing firm that owns the facility, a top Apple supplier, will also accelerate the pace of its diversification from China to countries such as 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 the central Chinese city of Zhengzhou was an “albatross” for Apple.

“We estimate that each week of these shutdowns and unrest is costing Apple approximately $1 billion per week in lost iPhone sales. Now about 5% of iPhone 14 sales are off the table because of these brutal shutdowns in China,” he said.

Demand for iPhone 14 units during the Black Friday holiday weekend was far higher than supply and could lead to large shortages at Christmas, Ives said, adding that the Foxconn outages that began in October were a major “gut punch” for Apple. this quarter.

In a note on Friday, Ives said Black Friday store checkouts were a major iPhone shortage around the world.

“Based on our analysis, we believe the iPhone 14 Pro shortage has worsened over the past week with very low inventories,” he said. “We believe that many Apple Stores now have a shortage of the iPhone 14 Pro … 25-30% below the normal title in a typical December.”

Ming-Chi Kuo, analyst at TF International Securities, He wrote on Twitter It said more than 10% of its global iPhone production capacity was affected by the situation at the Zhengzhou campus.

Earlier this month, Apple said its latest iPhone lineup would be “temporarily affected” by China’s Covid restrictions. It said the assembly facility in Zhengzhou, which normally houses about 200,000 workers, is “currently operating at significantly reduced capacity” due to Covid restrictions.

The Zhengzhou campus has been struggling with a Covid outbreak since mid-October, causing panic among its staff. Gone are the videos of people leaving Zhengzhou on foot It went viral on Chinese social media in early November, forcing Foxconn to step up measures to bring back workers.

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

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

On Tuesday, it was crowded After the company offered to pay new hires 10,000 yuan (US$1,400), or about two months’ wages, the protesters returned to their dormitories on the Foxconn campus and walked off the site altogether.

In a statement sent to CNN Business on Thursday after the protests ended, Apple said it has a team On the ground at the Zhengzhou facility, it works closely with Foxconn to ensure that employee concerns are addressed.

Even before this week’s demonstrations, Apple had started manufacturing the iPhone 14 in India as it sought to diversify its supply chain from China.

The announcement in late September marked a major shift in its strategy and comes as US tech companies seek alternatives to China, which has been the world’s factory for decades.

The Wall Street Journal reported earlier this year that the company was trying to increase production in countries such as Vietnam and India, citing China’s strict Covid policies as one of the reasons.

Kuo said on Twitter that Foxconn believes this accelerate expansion iPhone manufacturing capacity in India as a result of the Zhengzhou lockdowns and resulting protests.

It has predicted that iPhone production by Foxconn in India will increase by at least 150% in 2023 compared to 2022, and the long-term goal will be to ship 40% to 45% of phones under 4 from India. % Now.

– Chris Isidore contributed to this report.

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