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.
RUN IT BACK: A succesful first project working with hyperscalers to design chips encouraged MediaTek to start a second project, aiming to hit stride in 2028 MediaTek Inc (聯發科), the world’s biggest smartphone chip supplier, yesterday said it is engaging a second hyperscaler to help design artificial intelligence (AI) accelerators used in data centers following a similar project expected to generate revenue streams soon. The first AI accelerator project is to bring in US$1 billion revenue next year and several billion US dollars more in 2027, MediaTek chief executive officer Rick Tsai (蔡力行) told a virtual investor conference yesterday. The second AI accelerator project is expected to contribute to revenue beginning in 2028, Tsai said. MediaTek yesterday raised its revenue forecast for the global AI accelerator used
TEMPORARY TRUCE: China has made concessions to ease rare earth trade controls, among others, while Washington holds fire on a 100% tariff on all Chinese goods China is effectively suspending implementation of additional export controls on rare earth metals and terminating investigations targeting US companies in the semiconductor supply chain, the White House announced. The White House on Saturday issued a fact sheet outlining some details of the trade pact agreed to earlier in the week by US President Donald Trump and Chinese President Xi Jinping (習近平) that aimed to ease tensions between the world’s two largest economies. Under the deal, China is to issue general licenses valid for exports of rare earths, gallium, germanium, antimony and graphite “for the benefit of US end users and their suppliers
Dutch chipmaker Nexperia BV’s China unit yesterday said that it had established sufficient inventories of finished goods and works-in-progress, and that its supply chain remained secure and stable after its parent halted wafer supplies. The Dutch company suspended supplies of wafers to its Chinese assembly plant a week ago, calling it “a direct consequence of the local management’s recent failure to comply with the agreed contractual payment terms,” Reuters reported on Friday last week. Its China unit called Nexperia’s suspension “unilateral” and “extremely irresponsible,” adding that the Dutch parent’s claim about contractual payment was “misleading and highly deceptive,” according to a statement
Artificial intelligence (AI) giant Nvidia Corp’s most advanced chips would be reserved for US companies and kept out of China and other countries, US President Donald Trump said. During an interview that aired on Sunday on CBS’ 60 Minutes program and in comments to reporters aboard Air Force One, Trump said only US customers should have access to the top-end Blackwell chips offered by Nvidia, the world’s most valuable company by market capitalization. “The most advanced, we will not let anybody have them other than the United States,” he told CBS, echoing remarks made earlier to reporters as he returned to Washington
RSS