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Apple has a huge problem with its supplier’s iPhone factory in China


Hong-Kong
CNN affairs

A violent one workers’ revolt at the world’s largest iPhone factory this week in Central China further scrambles Apple’s tense offerings, highlighting how the country’s strict zero-Covid policy is hurting global tech companies.

Trouble began last month when workers left the factory campus in Zhengzhou, the capital of central Henan province, fearing Covid. There was a shortage of staff and bonuses were offered for employees to return.

But protests erupted this week when newly hired staff said management had failed to keep their promises. The workers, who clashed with security officers wearing hazmat suits, were eventually offered money to stop and leave.

Analysts said the woes faced by Taiwanese contract manufacturing company Foxconn, a leading 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 continued shutdown of production at Foxconn’s sprawling campus in the central Chinese city of Zhengzhou was an “albatross” for Apple.

“Each week of this shutdown and turmoil is estimated to cost Apple about $1 billion a week in lost iPhone sales. Now about 5% of iPhone 14 sales are probably off the table because of these brutal shutdowns in China,” he said.

Demand for iPhone 14 units over the Black Friday holiday weekend far outstripped supply and could lead to major shortages leading up to Christmas, Ives said, adding that the disruptions at Foxconn, which began in October, are a major “underbelly” for Apple were these quarters.

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In a note Friday, Ives said Black Friday store checks are showing major iPhone shortages across the board.

“Based on our analysis, we believe iPhone 14 Pro shortages have gotten much worse over the past week with very low stocks,” he wrote. “We believe many Apple Stores now have iPhone 14 Pro shortages…up to 25%-30% below normal heading into a typical December.”

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

Earlier this month, Apple announced that it would ship the latest lineup of iPhones “temporarily affected” due to Covid restrictions in China. It said its assembly facility in Zhengzhou, which is normally home to some 200,000 workers, is “currently operating at a significantly reduced capacity” due to Covid curbs.

The Zhengzhou campus has been battling a Covid outbreak since mid-October that has caused panic among workers. Videos circulated of people leaving Zhengzhou on foot went viral on Chinese social media in early November, forcing Foxconn to take more measures to get its staff back.

To entice employees, the company said it did quadrupled daily bonuses for factory workers this month. A week ago, state media reported that 100,000 people had attended successfully recruited to fill the vacant positions.

But on Tuesday night, hundreds of workers, mostly new hires, began protesting the terms of the payment packages they were being offered, as well as their living conditions. Scenes grew increasingly violent the next day as workers clashed with a large number of security forces.

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Wednesday evening the crowds were over quiet, with protesters returning to their dormitories on the Foxconn campus after the company offered to pay the newly hired workers 10,000 yuan ($1,400), or about two months’ wages, to quit and leave the site altogether.

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

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

The announcement in late September marked a major change in strategy and came at a time when US 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 like Vietnam and India, citing China’s strict Covid policies as one of the reasons.

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

Foxconn’s production of iPhones in India will grow by at least 150% in 2023 compared to 2022, he predicted, and the longer-term goal would be to ship between 40% and 45% of such phones from India, compared to less than 4% now.

— Chris Isidore contributed to this report.

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