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Apple has a huge problem with an iPhone factory in China

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Workers at the world’s biggest Apple iPhone factory in central China protest over contract disputes amid anti-virus controls on Nov 23. PHOTO/COURTESY:CNN

  • The troubles started last month when workers left the iPhone factory campus in Zhengzhou, the capital of the central province of Henan, due to COVID fears.
  • Short on staff, bonuses were offered to workers to return.
  • But protests broke out this week when the newly hired staff said management had reneged on their promises.

A violent workers’ revolt at
the world’s largest iPhone factory this week in central China is further
scrambling Apple’s strained supply and highlighting how the country’s stringent
zero-COVID policy is hurting global technology firms.

The troubles started last
month when workers left the factory campus in Zhengzhou, the capital of the
central province of Henan, due to COVID fears.

Short on staff, bonuses were
offered to workers to return.

But protests broke out this
week when the newly hired staff said management had reneged on their promises.

The workers, who clashed with
security officers wearing hazmat suits, were eventually offered cash to quit
and leave.

Analysts said the woes facing
Taiwan contract manufacturing firm Foxconn, a top Apple supplier which owns the
facility, will also speed up the pace of diversification away from China to
countries like India.

Daniel Ives, managing director
of equity research at Wedbush Securities, told CNN Business that the ongoing
production shutdown in Foxconn’s sprawling campus in the central Chinese city
of Zhengzhou was an “albatross” for Apple.

“Every week of this shutdown
and unrest we estimate is costing Apple roughly $1 billion (approx. Ksh.122.3
billion)a week in lost iPhone sales. Now roughly 5 percent of iPhone 14 sales
are likely off the table due to these brutal shutdowns in China,” he said.

Demand for iPhone 14 units
during the Black Friday holiday weekend was much higher than supply and could
cause major shortages leading into Christmas, Ives said, adding that the
disruptions at Foxconn, which started in October, have been a major “gut punch”
to Apple this quarter.

In a note Friday, Ives said
Black Friday store checks show major iPhone shortages across the board.

“Based on our analysis, we
believe iPhone 14 Pro shortages have gotten much worse over the last week with
very low inventories,” he wrote.

“We believe many Apple Stores
now have iPhone 14 Pro shortages … of up to 25-30 percent below normal heading
into a typical December.”

Ming-Chi Kuo, an analyst at TF
International Securities, wrote on Twitter that more than 10 percent of global
iPhone production capacity was affected by the situation at the Zhengzhou
campus.

COVID outbreak

Earlier this month, Apple said
shipments of its latest lineup of iPhones would be “temporarily impacted” by
COVID restrictions in China.

It said its assembly facility
in Zhengzhou, which normally houses some 200,000 workers, was “currently
operating at significantly reduced capacity,” due to COVID curbs.

The Zhengzhou campus has been
grappling with a COVID outbreak since mid-October that caused panic among its
workers.

Videos of people leaving
Zhengzhou on foot went viral on Chinese social media in early November, forcing
Foxconn to step up measures to get its staff back.

To entice workers, the company
said it had quadrupled daily bonuses for workers at the plant this month.

A week ago, state media
reported that 100,000 people had been successfully recruited to fill the vacant
positions.

But on Tuesday night, hundreds
of workers, mostly new hires, began to protest against the terms of the payment
packages offered to them and also about their living conditions.

Scenes turned increasingly
violent into the next day as workers clashed with a large number of security
forces.

By Wednesday evening, the
crowds had quieted, with protesters returning to their dormitories on the
Foxconn campus after the company offered to pay the newly recruited workers
10,000 yuan (around Ksh.170,466), or roughly two months of wages, to quit and
leave the site altogether.

Opportunity for India

In a statement sent to CNN
Business on Thursday after the protests had wound down, Apple said it had a
team on the ground at the Zhengzhou facility working closely with Foxconn to
ensure employees’ concerns were addressed.

Even before this week’s
demonstrations, Apple had started making the iPhone 14 in India, as it sought
to diversify its supply chain away from China.

The announcement in late
September marked a major change in its strategy and came at a time when US tech
companies were looking for alternatives to China, the world’s factory for
decades.

The Wall Street Journal
reported earlier this year that the company was looking to boost production in
countries such as Vietnam and India, citing China’s strict COVID policy as one
of the reasons.

Kuo said on Twitter that he
believed Foxconn would speed up the expansion of iPhone production capacity in
India as a result of Zhengzhou lockdowns and resulting protests.

The production of iPhones by
Foxconn in India will grow by at least 150 percent in 2023 compared to 2022, he
predicted, and the longer term goal would be to ship between 40 and 45 percent
of such phones from India, compared to less than 4 percent now.



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