China’s Zhengzhou complex is popularly known as the iPhone city of the country. The campus has been wracked by lockdowns and worker unrest for weeks after Covid infections left Foxconn and the local government struggling to contain the outbreak. According to a Bloomberg report citing person familiar with assembly operations, the turmoil could result in a production shortfall of close to 6 million iPhone Pro units this year.
“Apple and Foxconn increased their estimates of the Zhengzhou shortfall over the past two weeks due to growing disruptions, said the person, adding that they expect to be able to make up the 6 million units in lost output in 2023″, the report says.
According to the latest report, the situation remains fluid at the plant and the estimate of lost production could change. Citing a source that does not want to ne named, the report says that much will depend on how quickly Foxconn Technology Group, the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against Covid restrictions. If lockdowns continue in the weeks ahead, production could be set further back.
The facility produces the vast majority of iPhone 14 Pro and Pro Max devices, the company’s most in-demand handsets of 2022. As per a previous Bloomberg news report, the Cupertino-based company has already lowered its overall production target to about 87 million units from an earlier projection of 90 million units.
The Zhengzhou campus has been wracked by lockdowns and worker unrest. Thousands of staff fled in October after chronic food shortages. They were eventually replaced by new employees who rebelled against pay and quarantine practices.
Apple and Foxconn didn’t immediately respond to Bloomberg’s requests for comment.
The tumult in iPhone City, as the Zhengzhou complex is known, is a stark reminder of the risks for Apple of its vast supply chain in China. Foxconn endeavored to quell protests — largely driven by new hires arriving at Zhengzhou and rejecting onerous Covid controls — by offering a bonus to any workers choosing to return home. Over the weekend, it added a bonus of as much as $1,800 per month for full-time employees staying at the factory through December and January.
The highly visible and unusual protests in Zhengzhou aggravated an already challenging business environment. The enormous complex hosts as many as 200,000 workers during peak iPhone production season. More than 20,000 new hires are reported to have left after the protests.
The departure of new workers is less of a factor in production than the quarantines imposed on existing employees because of their experience and skill, another person familiar with assembly operations said. Foxconn is actively recruiting additional employees, with help from government officials. The Taiwanese company, China’s largest private-sector employer, has years of experience hiring assembly personnel by the tens of thousands, particularly during peak season.
Apple and Foxconn, also known as Hon Hai Precision Industry Co., said earlier this month that shipments of its newest premium iPhones will be lower than previously expected because of China’s lockdowns without providing specifics.
Morgan Stanley’s analysts also worked through a worst-case scenario for Apple and Foxconn, in which the Zhengzhou facility couldn’t ship any iPhones for the rest of the year. That would result in a 20% shortfall in expected sales for Hon Hai in the current quarter, analysts led by Sharon Shih wrote in the research note November 7.
(With inputs from Bloomberg)
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