Big Problems with Apple iPhone Factory in China

This week, a violent revolt of workers at the largest iPhone factory in the world occurred in central China. It further strained Apple’s supply and highlighted how China’s strict zero-Covid policy is affecting global technology companies.

Troubles began last month when workers fled Zhengzhou’s factory campus, capital of Henan’s central province, because of Covid fears. Workers were given bonuses to help them return to work when they were short of staff.

Protests broke out after the new staff claimed that management had broken their promises. Workers clashed with security personnel in hazmat suits and were eventually offered cash to leave.

Analysts believe that the problems facing Taiwan contract manufacturer Foxconn, which is a major Apple supplier, will accelerate the pace of diversification from China to countries such as India.

Wedbush Securities managing director of equity research Daniel Ives stated to CNN Business that Apple was facing an “albatross” because of the ongoing shutdown at Foxconn’s campus in Zhengzhou, central China.

Apple loses approximately $1 billion each week due to the unrest and shutdowns in China. He said that roughly 5% of iPhone 14 sales are now likely to be lost due to the brutal shutdowns in China.

Ives stated that iPhone 14 units were in high demand during Black Friday weekend. This could lead to major shortages leading up to Christmas. He also said that disruptions at Foxconn (which began in October) have been a significant “gut punch” for Apple this quarter.

Ives wrote Friday that Black Friday store checks showed major iPhone shortages all over the country.

He wrote that iPhone 14 Pro shortages had become much more severe over the past week based on his analysis. “We believe that many Apple Stores are experiencing shortages of iPhone 14 Pro… at least 25%-30% lower than normal going into December.”

Ming-Chi Kuo , an analyst at TF International Securities , stated on Twitter , that the Zhengzhou situation had affected more than 10% global iPhone production capacity.

Covid restrictions

Apple earlier this month stated that shipments of its new iPhone lineup would be “temporarily affected” due to China’s Covid restrictions. Apple stated that its assembly plant in Zhengzhou, home to some 200,000 workers, is “currently operating with significantly reduced capacity” due to Covid curbs.

Since mid-October, the Zhengzhou campus has been dealing with a Covid epidemic that has caused panic among its employees. Foxconn took drastic measures to recover its staff after viral videos of Zhengzhou residents walking away from the city in early November.

The company claimed it offered daily bonuses that were quadrupled to attract workers this month. State media reported last week that 100,000 people were successfully hired to fill the vacancies.

On Tuesday night, however, hundreds of workers, mostly recent hires, protested against the terms and conditions of their payment packages as well as about their living conditions. The violence escalated as workers clashed violently with large numbers of security personnel.

After the Foxconn company offered to pay 10,000 yuan ($1,400) to the newly hired workers, or approximately two months’ wages, protesters returned to their Foxconn dormitories.

Apple stated in a statement to CNN Business that it had a team on the ground at Zhengzhou to address employees’ concerns.

Maybe India will overtake

Apple began manufacturing the iPhone 14 in India even before the demonstrations. This was to diversify its supply chains from China.

It was announced in September and marked a significant shift in the company’s strategy. This announcement came at a moment when US tech companies were searching for alternatives to China, which has been the world’s largest factory for decades.

The Wall Street Journal reported that the company was seeking to increase production in India and Vietnam, citing China’s Covid policy.

Kuo stated on Twitter that he believes Foxconn will accelerate the expansion iPhone production capacity in India due to Zhengzhou lockdowns, which he blamed for the protests.

He predicted that the production of iPhones in India by Foxconn will increase by at least 150% by 2023, compared with 2022. The longer-term goal is to ship between 40 and 45 percent of these phones from India, as opposed to less than 4% currently.


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