Apple is having a big problem with its supplier’s iPhone factory in China

Hong Kong
CNN Business

violent Workers’ revolution at the world’s largest iPhone factory this week in central China, stressing Apple’s strained supplies and highlighting how the country’s strict no-Covid policy is hurting global tech companies.

The unrest began last month when workers left the factory campus in Zhengzhou, the capital of central Henan Province, over Covid fears. Due to the lack of staff, bonuses were offered to workers for returning.

But protests erupted this week when newly hired employees said management had broken promises. The workers, who clashed with security officers in protective suits, were eventually offered money to quit and leave.

Analysts said the problems facing Taiwanese contract manufacturing firm Foxconn, the largest supplier to Apple that owns the facility, will also accelerate diversification away from China into countries like 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 central China’s Zhengzhou was an “albatross” for Apple.

“Each week of this shutdown and disruption that we estimate is costing Apple nearly $1 billion a week in lost iPhone sales. Now, roughly 5% of iPhone 14 sales are likely off the table because of these brutal shutdowns in China.

Ives said demand for iPhone 14 units during the Black Friday weekend was much higher than supply and could cause significant shortages this Christmas, adding that the disruptions at Foxconn, which began in October, were a “big blow” to Apple this quarter.

In a note on Friday, Ives said that Black Friday store checks show a significant iPhone shortage across the board.

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“Based on our analysis, we believe the iPhone 14 Pro shortage has worsened over the past week as inventory is very low,” he wrote. “We believe many Apple Stores are now short of iPhone 14 Pro… up to 25%-30% less than usual in a typical December.”

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

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

The Zhengzhou campus has been grappling with a Covid outbreak since mid-October that has caused panic among its workers. Videos of people leaving Zhengzhou on foot have emerged on Chinese social media in early November, forcing Foxconn to step up measures to get its employees back.

To entice workers, the company said it did Quadruple your daily rewards For factory workers this month. A week ago, state media reported that 100,000 people were He was successfully recruited to fill vacancies.

But on Tuesday night, hundreds of workers, most of them new hires, began protesting the terms of the payment packages offered to them as well as their living conditions. The scenes turned increasingly violent the next day as the workers clashed with a large number of security forces.

By Wednesday evening, the crowds were It subsided, as protesters returned to their dormitories on Foxconn’s campus after the company offered to pay newly hired workers 10,000 yuan ($1,400), or roughly two months’ wages, to quit the job and leave the site altogether.

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

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

The announcement in late September marked a major change in its strategy and came at a time when US tech companies were looking for alternatives to China, the global manufacturer for decades.

The Wall Street Journal It reported earlier this year that the company was looking to ramp up production in countries like Vietnam and India, citing China’s strict Covid policy as one of the reasons.

Kuo said on Twitter that he believes Foxconn will Accelerate expansion of iPhone production capacity in India as a result of the Zhengzhou lockdown and resulting protests.

He predicted that the production of Foxconn’s iPhones in India would grow by at least 150% in 2023 compared to 2022, and the long-term goal would be to ship between 40% and 45% of these phones from India, compared to less than 4.% currently. .

— Chris Isidore contributed to this report.

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