Apple supplier Foxconn has been reporting production outages in China for weeks due to corona lockdowns. The recent uprisings against the rigorous policies of the leadership in Beijing have further aggravated the situation. Is an iPhone City in China still a good idea?
The lockdowns in China and the protests against them are leaving deep scars on Apple. According to an insider, the main iPhone factory in Zhenzhou in China will produce around six million fewer iPhone Pro devices by the end of the year. This is reported by the news portal Bloomberg. A lot now depends on whether and how quickly the workers at the important Taiwanese supplier Foxconn return to the assembly line, they say. If lockdowns continue, production could fall even further. Foxconn will find it difficult to catch up.
Apple’s troubles in China are testing the patience of iPhone buyers and investors. The currently most popular iPhone 14 Pro and Pro Max models will not be available until Christmas. Apple had already announced on November 6 that the restrictions in the important production facility in Zhengzhou would lead to significant capacity losses.
Since then the situation has worsened again. Until the outbreak of the workers’ unrest, Foxconn was still expecting a “maximum of 30 percent” loss, but now it is assumed to be “more than 30 percent”, according to internal estimates available to the Reuters news agency. On Monday, investors punished the Apple share again with almost three percent. The paper has lost almost a fifth of its value since the beginning of the year.
The Zhenzhou factory, also known as iPhone City, is a huge complex that houses up to 200,000 workers during the peak iPhone production season. The dramatic conditions during an ordered lockdown due to a Covid outbreak and the subsequent protests had recently triggered a mass exodus in which more than 20,000 employees are said to have left the factory premises. Foxconn then tried to persuade employees to stay with bonuses – apparently with mixed success.
Beijing continues to rely on strict corona restrictions with massive effects on the economy. Of all the companies that produce in China, Apple has been particularly badly hit. Because iPhones are mainly manufactured in the Middle Kingdom. The world’s most valuable company employs an entire city in Zhengzhou to build its devices. Taiwanese supplier Foxconn ships a total of more than 230 million iPhones every year. “It shows that everyone, even Apple, is vulnerable to supply chain restrictions in China due to Covid,” Bloomberg quoted Moor Insights’ Anshel Sag as saying
Even if many potential buyers for iPhone 14 Pro models would accept the delays, iPhone sales could shift to the March quarter, analysts warn. Some see the situation even more critically. Buyers could switch to other models. “We see an increasing risk that demand will shift to the iPhone 14/14 Plus because consumers need a new phone or would rather buy Christmas gifts than a delivery promise,” Dow Jones quoted Credit Suisse analyst Shannon Cross as saying.
The chaos in China is not just a short-term problem for Apple. The China strategy also raises long-term questions. With the increasing tensions between China and the USA, the focus on the Middle Kingdom as a production location has become riskier. “This will force Apple to accelerate the diversification of its manufacturing base,” predicts Amir Anvarzadeh, an analyst at Asymmetric Advisors. Apple and Foxconn would probably look for alternative production locations such as India and Vietnam.
