By Agence France-Presse | Updated: 3 November 2022
The lockdown of Foxconn’s Zhengzhou factory, the world’s biggest producer of iPhones, has highlighted some of the risks of relying on zero-Covid China’s manufacturing sector, analysts told AFP.
Foxconn, Apple’s principal subcontractor, has seen a surge in Covid-19 cases at its Zhengzhou site, leading the company to lock down the vast complex in a bid to keep the virus in check.
Images then emerged of panicking workers fleeing the site on foot in the wake of allegations of poor conditions at the facility, which employs hundreds of thousands of workers.
Foxconn is China’s biggest private sector employer, with over a million people working across the country in its around thirty factories and research institutes.
But Zhengzhou is the Taiwanese giant’s crown jewel, churning out iPhones in quantities not seen anywhere else.
“In a normal situation, almost all the iPhone production is happening in Zhengzhou,” said Ivan Lam, an analyst with specialist firm Counterpoint.
Risk of ‘strong dependence’
Apple manufactures more than 90 percent of its products in China, which is also one of its most important markets.
“For Apple, it is once again a bad example in terms of the stability of production chains,” Alicia Garcia Herrero, Asia-Pacific manager for Natixis bank, told AFP.
Experts say the company’s heavy dependence on China “brings potential risks, especially when the US-China trade war shows no signs of de-escalating,” according to Dezan Shira & Associates, a consulting firm.
Opened in 2010, the Zhengzhou factory employs up to 300,000 people who live on-site all year round — creating a sprawling tech hub known as “iPhone city”.
It is made up of three factories, one of which produces the iPhone 14 — Apple’s newest handset model.
Apple did not respond to AFP’s request for comment on how exactly the lockdown will affect its production.
Analyst Lam estimates the partial stopping of work at the site resulted in a loss of “10 to 30 percent” of output, but said part of the production has also been temporarily moved to other Foxconn sites in China.
According to Foxconn, the site is currently operating a “closed loop” with the workers avoiding all contact with the outside world, while their daily bonuses have been quadrupled.
“This incident may have a limited impact,” on worldwide iPhone production, estimated analyst Ming-Chi Kuo, who specialises in Apple products.
“But suppliers in China must learn to improve closed-loop production efficiency in response to the zero-Covid policy,” he added.
China is the last major economy committed to a zero-Covid strategy, persisting with snap lockdowns, mass testing and lengthy quarantines in a bid to stamp out emerging outbreaks.
But new variants have tested local officials’ ability to snuff out flare-ups faster than they can spread, causing much of the country to live under an ever-changing mosaic of Covid curbs.
Apple has already begun outsourcing part of its production to India and is eyeing Vietnam in a bid to wean itself off Chinese manufacturing — a trend accelerated by Covid.
But that’s not so simple — last year, nearly 7.5 million iPhones were made in India, just three percent of Apple’s total production.
“Increasing the capacity of factories (in India) is difficult,” Lam said.
iPhone 14 Pro Shipments Could Fall 20 Million Units Short of Market Estimates After China Factory Unrest: Kuo
By Reuters | Updated: 30 November 2022
Apple’s iPhone 14 Pro and Pro Max model shipments could miss market expectations by up to 20 million units in the holiday quarter due to labour unrest at a major Chinese factory, TF Securities analyst Ming-Chi Kuo said.
Kuo is the latest to flag a hit to the world’s most valuable company from protests over pay and strict COVID-19 curbs at the world’s biggest iPhone factory, the Foxconn-operated plant in the central city of Zhengzhou.
He trimmed his estimate for quarterly iPhone shipments by about 20 percent to between 70 million and 75 million units, compared with the market consensus of 80 million to 85 million units.
Apple shares were trading down more than 2 percent, set to add to the 6 percent decline so far this month as worries grow over shipments in the all-important holiday sales season.
Kuo, in a blog post on Tuesday, also predicted that the supply shortfall could erase demand for the more popular Pro models, instead of deferring sales, as consumers also grapple with a weakening economy.
In contrast, other Apple analysts expect sales to pick up once production constraints ease and more Pro models become available.
“We note that Pro devices are sold out into early January, but we expect some of the missed revenue to trickle in the March-quarter,” CFRA Research analyst Angelo Zino said on Monday.
The constraints are coming at the worst possible time and are the most severe since the early days of the pandemic, Zino said.
Some analysts signaled the possibility of the challenges extending into 2023.
“I can’t imagine 2023 will be a solid year for Apple iPhones,” said Zeno Mercer, research analyst at investment advisory firm ROBO Global.
“Those looking to make an upgrade have, and otherwise disposable income for next-gen phones should be down.”
© Thomson Reuters 2022
Huawei, ZTE Sale, Import Banned in US After Being Listed as Threats by FCC
By Agence France-Presse | Updated: 26 November 2022
US authorities announced a ban Friday on the import or sale of communications equipment deemed “an unacceptable risk to national security” — including gear from Chinese giants Huawei Technologies and ZTE.
Both firms have been on a roster of companies listed as a threat by the Federal Communications Commission (FCC), and the new rules bar future authorizations of their equipment.
The move is the latest in a series of actions to limit the access of Chinese telecoms firms in United States networks, and comes amid a long-running standoff between the world’s two biggest economies.
US officials have shown growing wariness in recent years of Chinese telecommunications companies and technology.
“The FCC is committed to protecting our national security by ensuring that untrustworthy communications equipment is not authorized for use within our borders,” said the commission’s chairwoman Jessica Rosenworcel in a statement.
She added that the new rules are a part of ongoing work to guard against security threats.
The order also affects companies including video surveillance equipment firms Hangzhou Hikvision and Dahua Technology.
The FCC said Friday that it was also seeking comment on future action relating to existing authorizations.
Previously, Washington had banned Huawei from supplying US government systems and strongly discouraged the use of its equipment in the private sector, with fears that Huawei equipment could be compromised by Chinese intelligence.
In 2019, it put Huawei on a trade blacklist that barred US suppliers from doing business with it, cutting the Chinese firm — also a top smartphone brand — off from Google’s Android mobile operating system.
The US has cited national security fears as well to restrict the operations of China’s big three state-owned mobile carriers.
iPhone November Shipments to See Further Decline at Foxconn’s Plant in China
By Reuters | Updated: 26 November 2022
Foxconn’s flagship iPhone plant in China is set to see a further reduction in November shipments after the latest bout of worker unrest this week, a source with direct knowledge of the matter said on Friday, as thousands of employees quit.
The world’s largest Apple iPhone factory has been grappling with strict COVID-19 restrictions that have fuelled discontent among workers and disrupted production ahead of Christmas and January’s Lunar New Year holiday, as many workers were either put into isolation or fled the plant.
Following Wednesday’s escalation that saw workers clash with security personnel, Foxconn could now see more than 30 percent of the site’s November production affected, up from an internal estimate of up to 30 percent when the labour issues erupted in late October, the source said.
The factory is the only one that makes premium iPhone models, including the iPhone 14 Pro, and the source said it is unlikely to resume full production by the end of this month.
Foxconn, formally known as Hon Hai Precision Industry, declined to comment. Apple, which said on Thursday it had staff at the factory, did not respond to a request for comment on Friday.
“The worker unrest at Foxconn’s plant in China could weigh on Apple’s November iPhone shipments,” Victoria Scholar, head of investment at Interactive Investor said, as concerns grow over Apple’s ability to deliver products for the busy holiday period.
Apple shares were down 1.9 percent in late morning trade on Friday, while the benchmark Nasdaq index was down 0.3 percent.
“Apple is still viewed as one of the more resilient stocks in the tech sector… However, Apple continues to hold off from providing official guidance given the macroeconomic uncertainty,” Scholar added.
US Best Buy said on Tuesday it expected high-end iPhones to be in short supply at stores this holiday season. Analysts said iPhones at Apple stores in the United States during the Black Friday shopping season were also down from a year earlier, and it was taking longer to replenish stocks, Reuters reported this week.
KGI Securities analyst Christine Wang said if the current issue lasts through December, around 10 million units of iPhone production will be lost, which translates to 12 percent lower iPhone shipment in the last quarter of 2022.
Wedbush Securities estimates many Apple stores now have 25 percent to 30 percent fewer iPhone 14 Pros than normal heading into the holiday shopping season.
In a statement on November 7, Apple said it expected lower iPhone 14 Pro and iPhone 14 Pro Max shipments than previously anticipated.
Some new recruits hired in recent weeks by Foxconn claimed they were misled over compensation benefits at the factory, and others complained about sharing dormitories with colleagues who had tested positive for COVID.
Foxconn on Thursday apologised for a pay-related “technical error” when hiring and later offered CNY 10,000 (nearly Rs. 1,14,000) to protesting new recruits who agreed to resign and leave.
The source said more than 20,000 workers, mostly new hires not yet working on production lines, took the money and left. Videos posted on Chinese social media on Friday showed crowds and long lines of luggage-laden workers queuing for buses.
“It’s time to go home,” one person posted.
The plant, before its troubles began, employed more than 2,00,000 staff. It has dormitories, restaurants, basketball courts and a football pitch across its sprawling roughly 1.4 million-square-metre (15 million-square-foot) facility.
Another Foxconn source familiar with the matter said some new hires had left the campus but did not elaborate on how many. This person said that because the people leaving had not yet been trained or begun to work, their departures would not cause further harm to current production.
“The incident has a big impact on our public image but little on our (current) capacity. Our current capacity is not affected,” the source said.
“There’s only so much corporate can do on pandemic prevention… It’s been a problem for a while. This is a problem faced by everyone,” the person said, pointing to other worker unrest triggered by rigid COVID restrictions, including upheaval at another Apple supplier, Quanta, in May.
Foxconn shares closed down 0.5 percent, lagging the broader market, which ended flat.
© Thomson Reuters 2022
iPhone Factory Workers’ Protest: Over 20,000 New Hires Said to Leave Foxconn’s Zhengzhou Plant
By Reuters | Updated: 25 November 2022
More than 20,000 employees, most of them were new hires not yet working on the production line, have left Apple supplier Foxconn’s Zhengzhou plant in China, a Foxconn source familiar with the matter told Reuters on Friday. The person said the departures would complicate the company’s previous target of resuming full production by the end of November, following worker unrest that rocked production at the world’s largest iPhone factory.
Foxconn declined to comment. The worker departures come after the Taiwanese firm offered on Thursday CNY 10,000 (roughly Rs. 1,14,000) to employees who wanted to resign and leave the chaos-hit plant.
It had apologised for committing a pay-related “technical error” when hiring new recruits, which workers say was a factor that led to protests involving clashes with security personnel.
Videos posted on Chinese social media on Friday showed crowds and long lines of luggage-laden workers queuing for buses. “It’s time to go home,” said one of the posters.
The labour unrest at the Zhengzhou plant that began on Wednesday marked rare scenes of open dissent in China which workers say was fuelled claims of overdue pay and frustration over severe COVID-19 restrictions.
A second Foxconn source familiar with the matter said some new hires had left the campus but did not elaborate on how many. The person said the departures had no impact on current production, as the new staff still needed to take training courses before working online.
The unrest comes at a time when China is logging record numbers of COVID-19 infections and grappling with more and more lockdowns that have fuelled frustration among citizens across the country. But it has also exposed communication problems and a mistrust of Foxconn management among some staff.
Foxconn launched a hiring drive earlier this month promising bonuses and higher salaries after it had to enact measures to curb the spread of COVID-19 in October. The curbs forced the company to isolate many employees and the plant’s conditions prompted several to flee.
© Thomson Reuters 2022
iPhone Factory Workers Beaten During Protest Over Pay Dispute at Foxconn’s China Plant
By Associated Press | Updated: 24 November 2022
Police beat workers protesting over a pay dispute at the biggest factory for Apple’s iPhone, whose new model is delayed by controls imposed as China tries to contain a surge in COVID-19 cases.
Foxconn, the biggest contract assembler of smartphones and other electronics, is struggling to fill orders for the iPhone 14 after thousands of employees walked away from the factory in the central city of Zhengzhou last month following complaints about unsafe working conditions.
China’s status as an export powerhouse is based on factories such as Foxconn’s that assemble the world’s consumer electronics, toys and other goods.
The ruling Communist Party is trying to contain the latest wave of outbreaks without shutting down factories and the rest of its economy as it did in early 2020. Its tactics include “closed-loop management,” under which workers live in their factories with no outside contact.
Foxconn offered higher pay to attract more workers to the Zhengzhou factory to assemble the iPhone 14, which sells starting at $799 (roughly Rs. 65,270) in the United States.
On Tuesday, a protest erupted after employees who had traveled long distances to take jobs at the factory complained that the company changed terms of their pay, according to an employee, Li Sanshan.
Li said he quit a catering job when he saw an advertisement promising CNY 25,000 (roughly Rs. 2.8 lakh) for two months of work. That would be a significant hike over average pay for this type of work in the area.
After employees arrived, the company said they had to work two additional months at lower pay to receive the CNY 25,000 (roughly Rs. 2.8 lakh), according to Li.
“Foxconn released very tempting recruiting offers, and workers from all parts of the country came, only to find they were being made fools of,” he said.
Videos online showed thousands of people in masks facing rows of police in white protective suits with plastic riot shields. Police kicked and hit a protester with clubs after he grabbed a metal pole that had been used to strike him. People who shot the footage said it was filmed at the site.
The protests in Zhengzhou come as the ruling Communist Party faces rising frustration about restrictions in areas across China that have closed shops and offices and confined millions of people to their homes.
That has boiled over into protests in some cities. Videos on social media show residents tearing down barricades set up to enforce neighborhood closures.
The ruling party promised this month to try to reduce disruptions by shortening quarantines and making other changes. But the party is sticking to a “zero-COVID” strategy that aims to isolate every case while other governments relax controls and try to live with the virus.
The protest in Zhengzhou lasted through Wednesday morning as thousands of workers gathered outside dormitories and confronted factory security workers, according to Li.
Apple did not immediately respond to a request for comment.
The company earlier warned iPhone 14 deliveries would be delayed after access to an industrial zone around the Zhengzhou factory, which Foxconn says employs 200,000 people, was suspended following outbreaks.
Other videos showed protesters spraying fire extinguishers toward police.
A man who identified himself as the Communist Party secretary in charge of community services was shown in a video posted on the Sina Weibo social media platform urging protesters to withdraw. He assured them their demands would be met.
Foxconn, whose headquarters are in New Taipei City, Taiwan, said that its contractual obligation about payments “has always been fulfilled.”
The company denied what it said were comments online that employees with the virus lived in dormitories at the Zhengzhou factory. It said facilities were disinfected and passed government checks before employees moved in.
“Regarding any violence, the company will continue to communicate with employees and the government to prevent similar incidents from happening again,” a company statement said.
Foxconn offered up to CNY 10,000 (roughly Rs. 1.1 lakh) to newly hired employees who wanted to quit and return home, the finance news outlet Cailianshe reported, citing unidentified recruiting agents.
Foxconn didn’t respond to a request for confirmation or details.
Protests have flared as the number and severity of outbreaks has risen across China, prompting areas including Beijing, the capital, to close neighborhoods and impose other restrictions residents say go beyond what the national government allows.
More than 253,000 cases have been found in the past three weeks and the daily average is increasing, the government reported Tuesday. This week, authorities reported China’s first COVID-19 deaths in six months.
The government will enforce its anti-COVID policy while “resolutely overcoming the mindset of paralysis and laxity,” said a spokesman for the National Health Commission, Mi Feng.
Early Thursday, the government reported a total of 31,656 cases found over the past 24 hours, including 27,646 without symptoms and 212 infections it said were acquired abroad. The total was up about 10 percent from the previous day.
Also Thursday, people in eight districts of Zhengzhou with a total of 6.6 million residents were told to stay home for five days, going out only to buy food or for medical treatment. Daily mass testing was ordered in what the city government called a “war of annihilation” against the virus.
The city government of Guangzhou, the site of the biggest outbreaks, announced Wednesday it opened 19 temporary hospitals with a total of almost 70,000 beds for coronavirus patients. The city announced plans last week to build hospital and quarantine facilities for 250,000 people.
Also Wednesday, Beijing opened a hospital in an exhibition center and suspended access to Beijing International Studies University after a virus case was found there. The capital earlier closed shopping malls and office buildings and suspended access to some apartment compounds.
iPhone Supplier Foxconn Appoints Former TSMC, SMIC Executive as Semiconductor Strategy Officer
By Reuters | Updated: 23 November 2022
Major Apple supplier and iPhone assembler Foxconn said on Tuesday it had hired Chiang Shang-yi, a former top executive at Taiwanese chipmaker TSMC and Chinese chipmaker SMIC, to lead its growing push in the chip business.
Foxconn, the world’s largest contract electronics maker, is best known for assembling iPhones and other Apple products, though in recent years it has been expanding into chips to diversify its business.
It bought a chip plant from Taiwan chipmaker Macronix International last year and in September announced a joint venture with India’s Vedanta to set up semiconductor and display production plants there.
Foxconn said in a statement that Chiang had been appointed its semiconductor strategy officer, a newly created role.
The company said his deep experience in the industry would provide “invaluable support” and technical guidance for the group’s global semiconductor deployment strategy.
“We are grateful to have such a seasoned semiconductor veteran join us at this important juncture in the group’s development,” Foxconn Chairman Liu Young-way added in the statement.
Chiang previously worked as vice president of research and development at Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world’s largest contract chipmaker.
He was more recently the vice chairman of Semiconductor Manufacturing International (SMIC), the largest and most advanced chipmaker in China.
Chiang resigned from his position at SMIC last November, roughly a year after joining the company for the second time.
His move to China was controversial given Taiwan’s concern about losing chip talent to its giant neighbour, which has struggled to recreate the island’s success at making semiconductors.
© Thomson Reuters 2022
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