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Qualcomm to Keep Supplying Apple With Chips in 2023, Q4 Revenue Forecast Falls Short of Estimates

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By Reuters | Updated: 3 November 2022

Qualcomm’s forecast for holiday-quarter revenue fell about $2 billion (roughly Rs. 17,000 crore) short of Street estimates, as the chipmaker struggles with a slump in sales to smartphone customers, sending its shares down 7 percent in after-hours trading.

The company also projected a lower-than-expected profit for the quarter, and said it expected a low double-digit percentage decline in handset volumes this year, compared with its prior forecast of a mid-single-digit percentage drop.

Qualcomm’s disappointing forecast comes shortly after both Intel and AMD cut their earnings estimates, in a sign that the slump in demand is plaguing the wider industry.

Chipmakers including Texas Instruments and Micron Technology have also raised concerns about a sharp drop in demand from electronics companies as consumers curb their discretionary spending due to decades-high inflation, rising interest rates and fears of an economic slowdown.

A recovery in the smartphone market could be pushed to the second half of 2023 from the first half, IDC analyst Nabila Popal said.

“Demand has dropped globally, but very much so in China as well as in emerging markets. This is what’s actually pulling (down) the smartphone market the most,” she said.

The easing of chip shortages and supply-chain bottlenecks in recent quarters has led to excess inventory at smartphone makers, with Qualcomm estimating about eight to 10 weeks worth of “elevated inventory” that could take a couple of quarters to work through.

Qualcomm Chief Financial Officer Akash Palkhiwala said the holiday-quarter could be the bottom in terms of inventory as manufacturers use up their existing chips.

Revenue from Qualcomm’s handsets business, which accounts for more than half its total sales, rose 40 percent in the fourth quarter that ended September. 25, although revenue from chips that enable Wi-Fi and Bluetooth connections fell by a fifth.

It was not all doom and gloom for Qualcomm as it won more business from Apple, which the chipmaker has been trying to rely less on, and said the company would start to see benefits from its increased share of chips Samsung uses in the March quarter.

Qualcomm said it was now expecting to have the vast majority of 5G modem share for the 2023 iPhone launch, up from a previous assumption of 20 percent. It also said on a post-earnings call that it was assuming minimal contribution from Apple in fiscal 2025.

“We believe Apple will drive some growth in the December quarter…but the Android market is extremely weak and many new premium-tier foldable models that were launched a few months ago did not sell well at all,” said Kinngai Chan, analyst at Summit Insights Group.

The company is also facing stiffer competition from Taiwanese chipmaker MediaTek in the higher-end Android market, said Runar Bjørhovde, research analyst at Canalys.

Qualcomm forecast current-quarter revenue between $9.2 billion (roughly Rs. 76,200 crore) and $10 billion (roughly Rs. 83,000 crore), compared with analysts’ estimates of $12.02 billion (roughly Rs. 99,600 crore), according to Refinitiv. It expects adjusted earnings per share of between $2.25 (roughly Rs. 180) and $2.45 (roughly Rs. 200), versus expectations of $3.42 (roughly Rs. 280).

To cope with the tough macroeconomic environment, Qualcomm Chief Executive Cristiano Amon told analysts the company had implemented a hiring freeze and would make further cuts to operating expenses as needed.

© Thomson Reuters 2022

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Foxconn Said to Expect iPhone Production at COVID-Hit China Plant to Fully Resume by Early January

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Foxconn and the local government are said to be working hard on a recruitment drive to hire new staff.
By Reuters | Updated: 5 December 2022

Apple supplier Foxconn expects its COVID-hit Zhengzhou plant in China to resume full production around late December to early January, a Foxconn source said on Monday, after worker unrest disrupted the world’s biggest iPhone factory. The Zhengzhou plant has been grappling with strict COVID-19 restrictions that have fuelled discontent among workers over conditions at the factory. Production of the Apple device was disrupted ahead of Christmas and January’s Lunar New Year holidays, with many workers either having to isolate to combat the spread of the virus or fleeing the plant.

“The capacity is now being gradually resumed” with new staff hiring underway, said the person with direct knowledge of the matter. The person declined to be named as the information was private.

“If the recruitment goes smoothly, it could take around three to four weeks to resume full production,” the person said, pointing to a period around late December to early January.

Foxconn and the local government are working hard on the recruitment drive but many uncertainties remain, according to the source. The person cited “fears” some workers might have about working for the company after the plant was hit by protests last month that sometimes turned violent.

The labour unrest at the Zhengzhou plant last month marked rare scenes of open dissent in China which workers say was fuelled by claims of overdue pay and frustration over severe COVID-19 restrictions.

The unrest came 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.

“We are firing on all cylinders on the recruitment,” the person said.

Foxconn declined to comment.

Shares of Foxconn were up 0.5 percent on Monday morning, in line with the 0.6 percent rise in the broader market.

© Thomson Reuters 2022

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iPhone 14 Pro Shipments Could Fall 20 Million Units Short of Market Estimates After China Factory Unrest: Kuo

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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

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Huawei, ZTE Sale, Import Banned in US After Being Listed as Threats by FCC

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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.

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iPhone November Shipments to See Further Decline at Foxconn’s Plant in China

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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.

Lower Shipments

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

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iPhone Factory Workers’ Protest: Over 20,000 New Hires Said to Leave Foxconn’s Zhengzhou Plant

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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

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iPhone Factory Workers Beaten During Protest Over Pay Dispute at Foxconn’s China Plant

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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.

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