Production at Apple’s Zhengzhou, China manufacturing plant is expected to be affected by the turmoil.
Bloomberg could be able to change the expectation that the Chinese plant will lose production. However, Bloomberg is not privy to the details. The situation will also depend on how fast Foxconn Technology Group, the Taiwanese company operating the facility, can bring workers back to assembly lines after China’s strict coronavirus regulations. If lockdowns are continued, production could be delayed even more.
After COVID infection left Foxconn and local governments struggling to contain the outbreak, Zhengzhou has seen lockdowns and unrest in the hub. Last month, thousands fled the country amid food shortages. The new employees protested against the pay and quarantine and were hired.
Foxconn produces the majority of iPhone 14 Pro and Pro Max smartphones, which are in-demand units that have helped to fill the gap in iPhone 14 sales. Bloomberg reports that Apple has reduced its production target to 87 million units, down from 90 million units in the earlier projection.
According to a person familiar with the matter, Apple and Foxconn have increased their production estimates at Zhengzhou’s Zhengzhou plant in the past two weeks due to growing disruptions. The source also stated that the company expected to make up the 6 million lost devices by 2023.
Bloomberg was told by Anshel Sag, Moor Insights & Strategy, that this shows that even Apple is vulnerable to China’s supply-chain constraints due to COVID.
Analysts are more cautious about the Apple plant’s potential shortfall. Analysts at Morgan Stanley estimated that the iPhone Pro model shortage would amount to approximately 6 million units in March. This estimation was made before protests in Zhengzhou against COVID restrictions last week.
Zhengzhou’s turmoil is a reminder of the dangers Apple faces when it has its huge supply chain in China. Foxconn offered a bonus to workers who returned home to quell protests. Foxconn offered a $1,800 monthly bonus to full-time workers who remained at the factory during December and January.
Protests in Zhengzhou have made an already difficult business environment even more challenging. During peak iPhone production season, the facility employs as many as 200k workers. After the protests, more than 20,000 employees left.
According to Bloomberg, a person who is familiar with assembly operations said that the absence of new workers has not affected production as much as the quarantines placed on existing employees due to their skill and experience. Foxconn actively recruits more employees with the support of government officials.
Foxconn and Apple announced earlier this month that iPhone 14 Pro and Pro Max shipments will be lower than expected due to China’s lockdowns.
Analysts at Morgan Stanley believe that the worst-case scenario for Apple/Foxconn is that the Zhengzhou facility won’t be able to ship any iPhones for the remainder of the year. This will result in a 20% drop in Foxconn’s expected sales in the current quarter.
Amir Anvarzadeh, an analyst at Asymmetric Advisors, stated that nothing can be done to stop Foxconn and Apple from feeling the effects of China’s COVID policies. This will likely prompt Foxconn to seek out other manufacturing locations such as India and Vietnam.
He stated that Apple would be forced to diversify its production base.