Zhengzhou, in central China, is home to the world’s largest iPhone factory. Lifted Covid shutdown for five days, in a move analysts called a much-needed relief for Apple and its major supplier Foxconn.
Zhengzhou is the location of “iPhone City,” a sprawling campus owned by Taiwanese contract manufacturer Foxconn that typically houses around 200,000 workers who produce products for Apple.
(AAPL), including the iPhone 14 Pro and 14 Pro Max. Last Friday, the city shut down metropolitan areas for five days as Covid-19 cases soared there.
Foxconn’s massive facility is not part of the city’s metropolitan areas. However, analysts say the closure would have hurt efforts to restore lost production on campus, which is the site of Violent workers’ rebellion last week.
“This is some good news in a dark storm for Cupertino,” Daniel Ives, managing director of equity research at Wedbush Securities, told CNN Business, referring to the California city where Apple is headquartered. “There’s a lot of heavy lifting ahead for Apple to support factories.”
Ives estimates that ongoing supply outages at Foxconn’s Zhengzhou campus cost Apple nearly $1 billion per week in lost iPhone sales. The unrest began in October when workers left a university campus in Zhengzhou, the capital of central Henan Province, over Covid concerns. Due to the lack of staff, bonuses were offered to workers for returning.
But protests erupted last week when newly hired staff said management had broken promises. In the end, the workers, who clashed with the security officers, were offered money to quit and leave.
Analysts said Foxconn’s production woes will accelerate the diversification of the supply chain away from China to countries like India.
Ming-Chi Kuo, analyst at TF International Securities, wrote on social media It estimated iPhone shipments to be 20% lower than expected in the current October-December quarter. He said the average capacity utilization rate for the Zhengzhou plant was only about 20% in November, and is expected to improve to 30% to 40% in December.
Total iPhone 14 Pro and 14 Pro Max shipments in the current quarter will be 15 to 20 million units lower than previously expected, according to Kuo. He added that due to the higher price of the iPhone 14 Pro series, Apple’s overall iPhone revenue in the current holiday quarter could be 20% to 30% lower than investor expectations.
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