Apple has a huge problem at Foxconn’s iPhone factory in China

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cnn business

A violent workers’ revolt at the world’s biggest iPhone factory in central China this week is further exacerbating Apple’s strained supplies and highlighting how the country’s draconian zero-Covid policy is hurting global technology firms. Is.

Trouble began last month when workers left factory premises in Zhengzhou, the capital of the central province of Henan, over Covid fears. Staff shortage, bonuses offered to returning employees.

But protests erupted this week after newly hired workers said the management had gone back on its promises. Activists who confronted security officers wearing hazmat suits were eventually offered cash to quit and leave.

Analysts said the deal facing Taiwanese contract manufacturing firm Foxconn, a top Apple supplier, which owns the facility, would also accelerate its diversification from China to countries like India.

Daniel Ives, managing director of equity research at Weinbush Securities, told CNN Business that the ongoing production shutdown at Foxconn’s sprawling complex in the central Chinese city of Zhengzhou was an “albatross” for Apple.

“Every week of this shutdown and unrest we estimate that Apple is losing about $1 billion per week in lost iPhone sales. About 5% of iPhone 14 sales are now off the table because of these brutal shutdowns in China. There is a possibility of being out,” he said.

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Security forces clash with workers during a protest outside Apple supplier Foxconn's factory in Zhengzhou, China on November 23.

Ives said that demand for iPhone 14 units was much higher than supply during the Black Friday holiday weekend and could lead to a bigger shortage by Christmas. this quarter.

In a note Friday, Ives said Black Friday store checks show a shortage of flagship iPhones across the board.

“Based on our analysis, we believe the iPhone 14 Pro shortage has worsened over the past week with very low inventory,” he wrote. “We believe that many Apple Stores are now short of the iPhone 14 Pro … up to 25%-30% below normal December headings.”

Ming-Chi Kuo, an analyst at TF International Securities, wrote on twitter More than 10% of global iPhone production capacity was affected by the situation at the Zhengzhou complex.

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

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The Zhengzhou campus has been battling a Covid outbreak since mid-October, causing panic among its workers. Videos of people walking from Zhengzhou surfaced Viral on Chinese social media in early November, Foxconn was forced to take steps to get its employees back.

To woo the workers, the company said it has quadrupled the daily bonus of workers at the plant this month. A week ago, state media reported that 100,000 people had been successfully recruited to fill the vacant positions.

But on Tuesday night, hundreds of employees, mostly new hires, started protesting about the terms of the pay package offered to them and also about their living conditions. Scenes over the next day turned increasingly violent as activists clashed with security forces in large numbers.

By Wednesday evening the crowd had increased The Foxconn campus calmed down with protesters returning to their dormitories after the company offered to pay 10,000 yuan ($1,400), or roughly two months’ wages, to newly recruited employees, abandoning the site entirely. and to leave.

In a statement sent to CNN Business on Thursday after the protests ended, Apple said it has a team Foxconn is working on the ground at the Zhengzhou facility to address employees’ concerns.

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

The late September announcement marked a major shift in its strategy and came at a time when US tech companies have been searching for an alternative to China, the world’s factory for decades.

The Wall Street Journal reported earlier this year that the company was looking to boost production in countries like Vietnam and India, citing China’s strict Covid policy.

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

Production of iPhones by Foxconn in India will increase by at least 150% in 2023 compared to 2022, he predicted, and the long-term goal is to ship between 40% and 45% of such phones from India, compared with fewer than 4 Will happen. % Now he.

–Chris Isidore contributed to this report.


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