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| Apple Says Zhengzhou Foxconn Outbreak Affects iPhone Supply |
Apple Inc, which had expressed optimism about the global economy and its business in the past few weeks , warned on Sunday that its sales would fall short of expectations as a key iPhone factory in China was closed due to the coronavirus outbreak.
The sudden change in business outlook is yet another reminder of the risks involved in Apple's centralization of its manufacturing supply chain in China. The company's ability to flexibly deploy large numbers of workers to produce iPhones that meet global demand was once a strong point of its operations, but its reliance on China has become a liability, as the country's insistence on a zero-zero policy has led to lockdowns of cities, businesses and factories .
In mid-October, Foxconn, Apple's largest iPhone maker, closed its main factory in Zhengzhou as coronavirus cases surged . Foxconn has closed its doors to the outside world, locking about 200,000 workers inside the factory. Apple said in a statement on Sunday that iPhone production continued at "significantly reduced capacity." The company also said its production woes meant customers who bought the high-end iPhone 14 Pro and 14 Pro Max had to wait longer to receive the new ones.
"We are working closely with our suppliers to restore normal production levels while ensuring the health and safety of every worker," Apple said in a statement.
This is the second time this year that Apple has been affected by factory closures. It lost about $4 billion in iPad and Mac sales in the spring and summer after factories outside Shanghai were shut down to limit the spread of the virus.
The setbacks for Apple come as the outlook for the tech sector looks darker. Shares of Alphabet, Amazon and Meta have all fallen sharply this year as the economic slowdown has weakened e-commerce and ad sales. Apple shares have also slumped, but escaped the industry's slump, thanks in large part to its continued strong earnings.
China's zero-zero policy is driven by China's top leader, Xi Jinping. After Xi Jinping was re-elected for a third term, China's leadership continued to commit to this policy.
Apple is so influential in China that locals call Zhengzhou "Apple City" . At full capacity, the Foxconn factory there can produce 500,000 iPhones a day. It is the largest single production site for iPhones and accounts for more than half of Apple's annual sales.
"That's exactly what Apple was worried about," said Wayne Lim, a technology analyst at CCS Insight. "China will not relax on the zero-clearing policy, which will have a major impact because these high-end phones are the last segment of the smartphone market with strong demand."
After Foxconn sealed off its Zhengzhou factory, some factory workers fled the site and began trekking across villages to their hometowns. Photos and videos of their escape spread on social media. Leo Lim, a 29-year-old factory worker who was interviewed by The New York Times last week , said many workers were panicking as quarantine facilities began to fill up.
In order to keep workers working, Foxconn provides them with a subsidy of RMB 100 per day. Later the subsidy was increased to 400 RMB per day.
Apple has begun to diversify its supply chain, moving out of China, moving some iPhone production to India and other products to Vietnam. But the company still relies on China to make more than 90 percent of the iPhones it sells, according to analysts.
The push to diversify is "clearly not fast enough," Wayne Lim said.
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