Unrest at Chinese Factory Puts Apple at Risk of Losing 6 Million iPhones

Trouble in China: Apple is currently facing an iPhone catastrophe in the form of a potential six million production shortfall due to problems at a key Chinese factory in the city of Zhengzhou. The unrest comes as Chinese citizens protest harsh COVID restrictions, a situation that also affected Twitter, which was hit by a Chinese spam campaign in an effort to hide information about the protests.

The exact impact is still unclear, which means the estimation of how much product will be lost is not final. It all depends on how Foxconn Technology Group, the company operating the facility, handles the situation. Those involved are looking to return workers to the Chinese factory as quickly as possible, but if the lockdown is extended, production of iPhones could be further delayed.

• Foxconn is reportedly offering large bonuses to encourage workers to return to the Chinese factory in Zhengzhou. They include 500 yuan ($70) upon return, 3,000 yuan ($424) to anyone who stays for more than 30 days, and a bonus of 6,000 yuan ($848) in January.
• Analysts at Evercore ISI have said that the disruption could result in a demand of up to eight million units in the December quarter, which could impact Apple’s revenue by upward of $8 billion.

What is happening in Zhengzhou? Tensions are high all over China as people protest to end harsh COVID restrictions amidst what is reported to be a record outbreak. The situation has affected the Zhengzhou campus, which has experienced lockdowns and worker unrest while Foxconn and the government struggle to contain infections.

Many employees left in October as food shortages became a regular occurrence. While they were replaced, the new employees also protested because of delayed payments and poor living conditions.

• There was fear amongst the new employees that they would not receive the promised bonuses. Foxconn responded by saying it was a “technical error” and offering 10,000 yuan ($1,400) to those wanting to leave. Nearly 10% of the 200,000-strong workforce accepted the offer.
• Workers at the Chinese factory have been made to live on-site in a closed ecosystem because of COVID restrictions put in place by the city. The measures only allow them to move between the factory floor and their dorm rooms.

What does the factory produce for Apple? The Foxconn-operated factory produces a large number of iPhone 14 Pro and Pro Max devices. While it is only two of the phones in the series, they are the most in-demand products in the US, with sales of the iPhone 14 and 14 Plus slowing in comparison.

• The company started manufacturing devices in India and Vietnam, but the Chinese factory in Zhengzhou is still responsible for almost all of the Pro models.
• Earlier in November, Apple cut the production target of the Chinese factory because of the disruptions caused by COVID. Originally, the target was reduced to three million units, but that has since changed further.
• The sustained demand for the iPhone 14 series led Apple to request 90 million units from suppliers. The strong demand in a slow market makes the disruption all the more devastating for the tech giant.

Poor timing makes matters worse. The COVID restrictions and the Foxconn factory protests were already bad enough for Apple’s stock, causing it to dip on Monday, though it has since bounced back. However, timing is a major part of the issue, with supply chain issues and shortages cropping up during the peak holiday season. Perhaps the experience will see Apple further diminish its reliance on Chinese factories in the coming days, something it has been doing gradually over the years.