Production of the iPhone Pro is anticipated to be cut by nearly 6 million units due to tumult at Apple’s primary manufacturing facility in Zhengzhou, China.
According to Bloomberg, which cited a person familiar with Apple’s assembly operations, the situation at the plant is still a work in progress, and the estimate of production loss may alter depending on how quickly Foxconn Technology Group, the Taiwanese business that runs the facility, can bring workers back to the assembly lines following violent protests against COVID limits. Production may be even further delayed if lockdowns persist in the coming weeks.
The issues began last month when employees abandoned the industrial campus in Zhengzhou, the capital of the central province of Henan, because of concerns from COVID. In order to entice workers to return, bonuses were offered. The newly hired personnel, however, claimed that management had broken their commitments, which led to protests this week. The workers were eventually paid to quit and go after clashing with security guards. According to analysts, the difficulties faced by Foxconn, a major Apple supplier and the owner of the factory, will hasten the process of diversification away from China and toward nations like India.
This week, Daniel Ives, managing director of equity research at Wedbush Securities, told CNN Business that the ongoing production shutdown in Foxconn’s 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 a week in lost iPhone sales. Now roughly 5% of iPhone 14 sales are likely off the table due to these brutal shutdowns in China,” he said.
The majority of iPhone 14 Pro and Pro Max units, which are in high demand and have replaced the underwhelming demand for the standard iPhone 14, are produced at the Foxconn factory. According to Bloomberg, Apple cut its entire manufacturing target from an earlier forecast of 90 million units to roughly 87 million units. The source explains that due to escalating disruptions, Apple and Foxconn have raised their projections for the Zhengzhou shortfall over the previous two weeks. They also stated that they anticipate being able to make up the six million units of lost output in 2023.
“It demonstrates that everyone, even Apple, is susceptible to supply-chain constraints in China due to COVID,” said Anshel Sag of Moor Insights & Strategy.
Nothing can be done to stop Apple and Foxconn from being affected by China’s COVID laws, according to analyst Amir Anvarzadeh of Asymmetric Advisors, which might even push the business to search for alternate manufacturing destinations like India and Vietnam. “It will force Apple to accelerate the diversification of its production base,” he said.
In the worst-case scenario for Apple and Foxconn, according to analysts at Morgan Stanley, the Zhengzhou factory won’t be able to ship any iPhones for the remainder of the year, resulting in a 20% drop in Foxconn’s anticipated sales in the current quarter.
Coming up on Christmas, it’s not hard to see Apple scrambling to capitalize on what is perhaps the most lucrative time of the year. However, these concerns may lead to Apple shifting its focus away from the political turmoil in China and toward other places in the future; in any case, expect to see some socks beneath the tree this year.