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Apple to lose six million iphone Pros from tumult at China plant

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“It demonstrat­es that everyone, even Apple, is susceptibl­e to supply-chain constraint­s in China due to Covid.”

Anshel Sag

BEIJING: Turmoil at Apple Inc’s key manufactur­ing hub of Zhengzhou is likely to result in a production shortfall of close to six million iphone Pro units this year, according to a person familiar with assembly operations.

The situation remains fluid at the plant and the estimate of lost production could change, said the person, who asked not to be named because the informatio­n is private.

Much will depend on how quickly Foxconn Technology Group, the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against Covid restrictio­ns.

If lockdowns continue in the weeks ahead, production could be set further back.

Apple’s shares fell 2.6% to US$144.22 (RM650) in New York on Monday, marking the biggest one-day drop in more than two weeks. They have declined 19% this year.

The Zhengzhou campus has been wracked by lockdowns and worker unrest for weeks after Covid infections left Foxconn and the local government struggling to contain the outbreak.

Thousands of staff fled in October after chronic food shortages, only to be replaced by new employees who rebelled against pay and quarantine practices.

The Foxconn facility produces the vast majority of iphone 14 Pro and Pro Max devices, Apple’s most in-demand handsets this year. Those premium phones have picked up the slack for slumping demand for the regular iphone 14 models.

Apple lowered its overall production target to about 87 million units from an earlier projection of 90 million units, Bloomberg News reported.

Apple and Foxconn increased their estimates of the Zhengzhou shortfall over the past two weeks due to growing disruption­s, said the person, adding that they expect to be able to make up the six million units in lost output in 2023.

“It demonstrat­es that everyone, even Apple, is susceptibl­e to supply-chain constraint­s in China due to Covid,” said Anshel Sag of Moor Insights & Strategy.

The deficit, a significan­t shortfall for an operation that cranks out tens of millions of iphones ahead of the peak holiday season, ranks among the more bearish of analysts’ expectatio­ns.

Morgan Stanley analysts earlier this month estimated the iphone Pro model shortfall at about six million units this year, though that was before the outbreak of violence in Zhengzhou last week.

Apple and Foxconn didn’t immediatel­y respond to requests for comment.

The tumult in iphone City, as the Zhengzhou complex is known, is a stark reminder of the risks for Apple of its vast supply chain in China.

Foxconn endeavoure­d to quell protests – largely driven by new hires arriving at Zhengzhou and rejecting onerous Covid controls – by offering a bonus to any workers choosing to return home.

Over the weekend, it added a bonus of as much as US$1,800 (RM8,110) per month for full-time employees staying at the factory through December and January.

The highly visible and unusual protests in Zhengzhou aggravated an already challengin­g business environmen­t. The enormous complex hosts as many as 200,000 workers during peak iphone production season. More than 20,000 new hires are reported to have left after the protests.

The departure of new workers is less of a factor in production than the quarantine­s imposed on existing employees because of their experience and skill, another person familiar with assembly operations said.

Foxconn is actively recruiting additional employees, with help from government officials. The Taiwanese company, China’s largest private-sector employer, has years of experience hiring assembly personnel by the tens of thousands, particular­ly during peak season.

Apple and Foxconn, also known as Hon Hai Precision Industry Co, said earlier this month that shipments of its newest premium iphones will be lower than previously expected because of China’s lockdowns without providing specifics. — Bloomberg

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