Foxconn To Adjust iPhone Production To Mitigate Factory Lockdown

Apple supplier Foxconn said it will do everything it possibly can to fulfil its order book, after the world’s largest iPhone factory was placed in lockdown.

Earlier this month, Foxconn’s main iPhone plant in Zhengzhou, that employs some 200,000 workers and is sometimes referred to as “iPhone City”, was placed in a seven day lockdown.

Chinese authorities took the decision to lockdown the whole area after the Taiwanese company had tried to control a Covid outbreak at the world’s largest iPhone factory.

Factory lockdown

Before the lockdown, local reports had suggested that significant numbers of workers at the Zhengzhou plant had fled the site, as Coronavirus cases rose, due to fears of lockdowns or Covid-19 outbreaks.

That lockdown itself lasted until Wednesday 9 November, but Apple this week warned customers of longer wait times for new iPhones as the lockdown affected shipments of the latest generation of the device, introduced in September.

“We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models,” Apple said in a statement earlier this week.

“However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products.”

The company added that it is “prioritising the health and safety of the workers in our supply chain”, adding that it is “working closely with our supplier to return to normal production levels while ensuring the health and safety of every worker”.

The final quarter of the year is peak time for iPhone shipments, due to holiday demand.

UBS analysts said at the weekend that  Apple was expected to build about 41 million iPhones during the period. But the factory lockdown could impact this goal by a few million units.

About 60 percent of Foxconn’s iPhone assembly takes place at the Zhengzhou complex, Morgan Stanley estimated in a report last week.

Closed loop production

Now Reuters reported Foxconn as saying on Thursday it is adjusting production to prevent recent Covid-19 curbs at a massive iPhone factory in China from impacting holiday orders.

Speaking on an earnings call, Chairman Liu Young-way reportedly said the Christmas and Lunar New Year holidays are “very important.”

“We will definitely work all out to adjust our production capacity and output, so there is no impact on demand for these two holidays,” Liu said. He did not give details.

The cost impact of the Covid controls, including offering bonuses to retain workers, will be short term and Foxconn has been working with the government to resume normal production as soon as possible, he reportedly added.

On Wednesday, Foxconn said it would continue production in Zhengzhou under a “closed loop” system, where staff live and work on-site in a bubble isolated from the wider world.

There are concerns that if disruptions persist, it could hamper Foxconn’s ability to ship iPhones in what is traditionally the peak season for Taiwan tech firms as they race to supply smartphones and other electronics for the year-end holiday period in Western markets followed by the Lunar New Year in East Asia.

Moving production?

When asked if customers are pushing for production to be distributed to other Chinese cities or outside of China, Liu said that geopolitics is more likely to play a role in restructuring Foxconn’s production footprint than the pandemic.

“Of course there may be other factors that require the reconfiguration of production capacity, such as geopolitics,” Liu said.

Foxconn accounts for 70 percent of iPhone shipments globally, and Apple this week lowered its forecast for shipments of the premium iPhone 14 models.

It should be remembered that Apple’s production has already been disrupted by China’s strict zero-Covid policies during the pandemic, which this year resulted in a two-month lockdown in Shanghai and sporadic closures in other cities.

In September this year Apple announced that it had begun manufacturing some of its iPhone 14 handsets in India.

It also recently added a second manufacturer (Pegatron), which will begin making iPhone 14 handsets in India.

That move came as manufacturers explore alternative production sources away from China, amid its ongoing geopolitical tensions with Western nations, coupled with its strict pandemic restrictions that have disrupted supply chains for many industries.