Turmoil at Apple Inc’s key manufacturing hub in Zhengzhou is likely to result in a production shortfall of almost 6 million iPhone Pro units this year, a person familiar with assembly operations said.
The situation remains fluid at the plant and the estimate of lost production could change, the person said, asking not to be named discussing private information.
Much depends on how quickly Hon Hai Precision Industry Co (鴻海精密), the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against COVID-19 restrictions. If lockdowns continue in the weeks ahead, production could be set further back.
Photo: Ann Wang, REUTERS
The Zhengzhou campus has been wracked by lockdowns and worker unrest for weeks after COVID-19 infections left Hon Hai, also known as Foxconn Technology Group (富士康科技集團), and the local government struggling to contain the outbreak.
Thousands of staff fled last month after chronic food shortages, only to be replaced by new employees who rebelled against pay and quarantine practices.
The Zhengzhou facility produces the majority of iPhone 14 Pro and Pro Max devices, Apple’s most in-demand handsets this year. Those premium phones 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, Bloomberg News reported.
Apple and Hon Hai increased their estimates of the Zhengzhou shortfall over the past two weeks due to growing disruptions, the person said, adding that they expect to be able to make up the 6 million units in lost output next year.
“It demonstrates that everyone, even Apple, is susceptible to supply chain constraints in China due to COVID,” Moor Insights & Strategy senior analyst Anshel Sag said.
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 to be at about 6 million units this year, although that was before the outbreak of violence in Zhengzhou last week.
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. Hon Hai endeavored to quell protests — largely driven by new hires arriving at Zhengzhou and rejecting onerous COVID-19 controls — by offering a bonus to any workers choosing to return home.
Over the weekend, it added a bonus of about US$1,800 per month for full-time employees staying at the factory through next month and January.
The highly visible protests in Zhengzhou aggravated an already challenging business environment.
The enormous complex hosts about 200,000 workers during peak iPhone production season. More than 20,000 new hires are reported to have left after the protests.
Due to their respective experience and skills, the departure of new workers is less of a factor in production than the quarantines imposed on existing employees, another person familiar with assembly operations said.
Hon Hai 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.
Amir Anvarzadeh, an analyst with Asymmetric Advisors, said it cannot be helped that Apple and Hon Hai would take a hit from China’s COVID-19 policies.
However, it is likely to encourage them to seek alternative manufacturing locations, such as India and Vietnam, he said.
“It will force Apple to accelerate the diversification of its production base,” he added.
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