Apple’s Foxconn iPhone nightmare

Shipments of the latest Apple iPhones could be reduced in the run-up to Christmas as manufacturer Foxconn struggles to tackle worker unrest at its biggest production facility in China.

The Taiwanese technology giant “shut off” its primary plant in Zhengzhou in mid-October as “Covid cases spiked” in the region, said Tech Wire Asia. Around 200,000 staff were “walled” inside the facility’s grounds as “mounting worker discontent” saw employees “flee the enclosed factory campus”.

“Short on staff”, Foxconn offered workers bonuses to return to Zhengzhou, said CNN Business. But protests have since broken out and workers have clashed with security forces as “newly hired staff said management had reneged on their promises”. Employees “were eventually offered cash to quit and leave”.

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‘Tumult in iPhone city’

“In China, Apple’s meteoric rise has a lot to do with its partnership with the world’s biggest contract assembler of smartphones”, Foxconn, said Tech Wire Asia. “The vast majority of iPhone 14 Pro and Pro Max devices, Apple’s most in-demand handsets this year”, are produced at the Zhengzhou campus, said Bloomberg.

Apple is now facing a “huge problem”, said CNN Business. China’s zero-Covid policy “has posed big challenges for the running of Foxconn’s Zhengzhou plant”, said the Financial Times, and the recent unrest “will heighten investor concerns about supply chain risk at Apple”. The newspaper noted that more than 95% of all iPhones are produced in China.

Daniel Ives, managing director of equity research at Wedbush Securities, told CNN Business that the “production shutdown” at Foxconn’s “sprawling” Zhengzhou campus was an “albatross” for Apple.

Demand for the latest iPhone models during the Black Friday shopping period was “much higher than supply”, Ives warned. “Every week of this shutdown and unrest we estimate is costing Apple roughly $1bn a week in lost iPhone sales,” he continued.

“The highly visible and unusual protests in Zhengzhou aggravated an already challenging business environment,” said Bloomberg. “The tumult in iPhone city” comes as a “stark reminder of the risks for Apple of its vast supply chain in China”, said Bloomberg.

Supply chain diversification

As long as China maintains its zero-Covid policy, “there will be huge impact on Foxconn and Apple”, said Tech Wire Asia. The manufacturer was “once an operational strength that afforded Apple the flexibility to have legions of workers crank out iPhones to meet global demand”. Now, “reliance on China has become a liability”.

“Much will depend on how quickly” Foxconn can get its production lines back up and running, said Bloomberg. If Covid restrictions including lockdowns continue, there could be further delays to production.

Analysts believe “the woes” Apple is facing will “speed up the pace of diversification away from China to countries like India”, said CNN. The company announced in September that it had begun iPhone production in India, “a major change in its strategy” as US companies looked for “alternatives to China, the world’s factory for decades”, CNN continued.

At present, the “only” sign of clarity is that Apple is warning visitors to its China website that some customers may need to wait until January for deliveries of the latest models, said Tech Wire Asia. Christmas and New Year is “expected to be a rather muted one for Apple”.