Unrest tipped to cost Apple 6-million iPhones
Turmoil at Apple ’ s manufacturing hub of Zhengzhou is likely to result in a production shortfall of close to 6-million iPhone Pro units in 2022, according to a person familiar with assembly operations.
The situation remains fluid at the plant and the estimate of lost production could change, the person said, asking not to be named discussing private information.
Much will depend on how quickly Foxconn Technology, the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against Covid-19 restrictions.
If lockdowns continue in the weeks ahead, production could be set back further.
The Zhengzhou campus has been racked by lockdowns and worker unrest for weeks after Covid-19 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 indemand 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 87million 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 6-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 in November estimated the iPhone Pro model shortfall at about 6-million units this year, though that was before the outbreak of violence in Zhengzhou last week.
Apple and Foxconn did not 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-19 controls — by offering a bonus to any worker choosing to return home. At the weekend, it added a bonus of as much as $1,800 per month for full-time employees staying at the factory during 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 experienced and skilled employees, 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 in hiring assembly personnel by the tens of thousands, particularly during peak season.
Apple and Foxconn, which is also known as Hon Hai Precision Industry Company, said earlier this month that shipments of the newest premium iPhones will be lower than previously expected, without providing specifics.
Morgan Stanley’s analysts also worked through a worstcase scenario for Apple and Foxconn, in which the Zhengzhou facility could not ship any iPhones for the rest of the year. That would result in a 20% shortfall in expected sales for Hon Hai this quarter, analysts wrote in the research note on November 7.