Foxconn Riot Could Cut China iPhone Production By More Than 30%

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by Tyler Durden
Saturday, Nov 26, 2022 - 07:00 PM

Apple's top manufacturing partner, Foxconn Technology Group, is set to see November iPhone shipments from a massive factory in Zhengzhou, China, known as iPhone City, plunge after a week of unrest, Reuters said, citing a source with direct knowledge of the matter. 

They said iPhone production would be slashed by more than 30% at Foxconn's Zhengzhou plant in November versus an earlier estimate of up to 30% when problems at the factory began in late October. 

Most of the 200,000-person workforce has been living in isolation since last month. New hires were brought in recently as management wanted to keep churning premium iPhone models, including the iPhone 14 and 14 Pro. 

But Foxconn failed to live up to its promises of higher pay for new hires, which sparked a riot across the world's largest iPhone factory earlier this week. To squash the violence, Foxconn began distributing 10,000 yuan ($1,400) to newly recruited workers to leave by Thursday.

"The source said more than 20,000 workers, mostly new hires not yet working on production lines, took the money and left," Reuters said. 

The Zhengzhou plant accounts for 70% of global iPhone shipments, and a reduction in production will ripple through the supply chain. Foxconn, formally known as Hon Hai Precision Industry Co, is Apple's top supplier, which means any manufacturing disruption in China could leave AT&T, Best Buy, and Verizon stores without iPhones.  

Another source said it's "impossible" for Apple to resume full iPhone production by the end of the month. 

ODDO BHF, a Franco-German financial services group, said even if Apple shifts production to other plants, "the impact will probably be significant, as long as these protests are continuing in Zhengzhou, with significant delays to be expected for the iPhone 14." 

Foxconn acknowledged it made errors in managing new hires while blaming local officials for unpredictable health policies that impacted meal delivery and made maintenance nearly impossible, according to Bloomberg, citing a person familiar with the company.  

"You see cases like Foxconn, and every company is now asking themselves, 'Will that happen to me?'

"Any company that depends on manufacturing has to consider alternatives. It will be costly, but it will be less costly than only relying on China and then China doesn't open up," Alicia Garcia Herrero, chief Asia Pacific economist at Natixis, said. 

In early November, Foxconn revised its earning expectations down for Q4 on zero Covid disruptions at the assembly facility, while Apple warned iPhone capacity would be reduced. After chaos this week, more downward revisions could be ahead.