According to a person privy to the information, turmoil at Apple Inc.’s key manufacturing hub of Zhengzhou is likely to result in a production shortfall of close to 6 million iPhone Pro units this year.
Under the condition of anonymity, the person revealed that situation remains fluid at the plant and the estimate of lost production could change.
The impact will totally depend on how soon and effectively does the Foxconn Technology Group, the Taiwanese company that operates the facility will can get its workers back to work after violent protests against Covid restrictions.
Weeks after Covid infections left Foxconn and the local government struggling to contain the outbreak, the Zhengzhou campus has been wracked by lockdowns and worker unrest.
Thousands of staff fled in October after chronic food shortages, only to be replaced by new employees who rebelled against pay and quarantine practices.
Vast majority of iPhone 14 Pro and Pro Max device have been produced in the Foxconn facility. Apple’s most in-demand handsets have picked up the slack for slumping demand for the regular iPhone 14 models. Apple lowered its overall production target to about 87 million units from an earlier projection of 90 million units.
Shortfall of 6 Million Units
The person said that Apple and Foxconn increased their estimates of the Zhengzhou shortfall over the past two weeks due to growing disruptions and also that they expect to be able to make up the 6 million units in lost output in 2023.
Anshel Sag of Moor Insights & Strategy said that “It demonstrates that everyone, even Apple, is susceptible to supply-chain constraints in China due to Covid”.
The deficit, a significant shortfall for an operation that cranks out tens of millions of iPhones ahead of the peak holiday season, ranks among the more bearish of analysts’ expectations. Morgan Stanley analysts earlier this month estimated the iPhone Pro model shortfall at about 6 million units this year, though that was before the outbreak of violence in Zhengzhou last week.
After this Apple shares fell as much as 1.9% on Germany’s Tradegate. This again brings into light the risk that Apple faces when it comes to the vast supply chain in China.
Foxconn endeavoured 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.
An already challenging business environment was aggravated by the visible and unusual protests. 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.
iPhone Shipments Decline
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 Nov. 7.
Amir Anvarzadeh, an analyst with Asymmetric Advisors, said it can’t be helped that Apple and Foxconn will take a hit from China’s Covid policies. But it’s likely to encourage them to seek out alternative manufacturing locations, such as India and Vietnam.
“It will force Apple to accelerate the diversification of its production base,” he said.
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