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Foxconn turmoil risks iPhone shipments, weighs on Apple stock

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By Yimou Lee

TAIPEI (RockedBuzz via Reuters) – Foxconn’s main iPhone plant in China will see a further reduction in November shipments following the latest bout of worker unrest this week, a source with direct knowledge of the matter said on Friday, as thousands of employees have resigned.

Apple’s largest iPhone factory in the world grappled with tough COVID-19 restrictions that fueled unrest among workers and halted production ahead of Christmas and the January Lunar New Year holiday as many workers were placed in solitary confinement or have fled the establishment.

After Wednesday’s escalation that saw workers clash with security personnel, Foxconn could now see more than 30% of the site’s November output affected, compared with an internal estimate of up to 30% when the labor troubles erupted in late October, the source said.

The factory is the only one producing premium iPhone models, including the iPhone 14 Pro, and the source said it was unlikely to resume full production by the end of this month.

Foxconn, formally known as Hon Hai Precision Industry Co, declined to comment. Apple, which said Thursday it has staff at the factory, did not respond to a request for comment on Friday.

“Worker unrest at Foxconn’s plant in China could weigh on Apple’s iPhone shipments in November,” said Victoria Scholar, chief investment officer at Interactive Investor, as concerns grow over Apple’s ability to deliver products for the holiday season .

Shares of Apple fell 1.9% in late morning trade on Friday, while the benchmark Nasdaq index fell 0.3%.

“Apple is still seen as one of the most resilient stocks in the tech sector…However, Apple is still not providing any official guidance given the macroeconomic uncertainty,” Scholar added.

US Best Buy Co Inc said Tuesday it expects high-end iPhones to be in short supply in stores this holiday season. Analysts said iPhones in Apple stores in the US during the Black Friday shopping season were also down from a year earlier and it took longer to replenish stocks, RockedBuzz via Reuters reported this week.

GRAPHIC: Riots at Foxconn Zhengzhou Plant in China – https://graphics.illustration.com/FOXCONN-CHINA/dwvkdrlnypm/graphic.jpg


KGI Securities analyst Christine Wang said that if the current problem lasts until December, about 10 million units of iPhone production will be lost, which translates into a 12% reduction in iPhone shipments in the last quarter of 2022.

Wedbush Securities estimates that many Apple stores now have 25% to 30% fewer iPhone 14 Pros than normal ahead of the holiday shopping season.

In a Nov. 7 statement, Apple said it expected lower-than-expected iPhone 14 Pro and iPhone 14 Pro Max shipments.

Some new recruits hired by Foxconn in recent weeks said they were duped about factory compensation benefits, and others complained they were sharing dormitories with colleagues who had tested positive for COVID.

Foxconn on Thursday apologized for a salary-related “technical error” during hiring and later offered 10,000 yuan ($1,400) to protest 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 show crowds and long lines of workers laden with luggage queuing for buses.

“Time to go home,” one person posted.

The plant, before its problems began, employed more than 200,000 people. It has dormitories, restaurants, basketball courts, and a soccer field throughout its sprawling approximately 1.4 million square meters (15 million square feet) facility.

Another Foxconn source familiar with the matter said some new hires had left the campus but didn’t specify how many. This person said that since the departing people had not yet been trained or started work, their departures would not cause further damage to current production.

“The incident has a large impact on our public image but little on our (current) capacity. Our current capacity is unaffected,” the source said.

“There’s only so much companies can do about 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 the strict COVID restrictions, including the disruption at another Apple supplier, Quanta, in May.

Shares of Foxconn closed 0.5% lower, lagging the broader market, which finished flat.

($1 = 7.1616 Chinese Yuan Renminbi)

(Reporting by Yimou Lee; Additional reporting by Brenda Goh, Tiyashi Datta and Aditya Soni in Bangalore; Editing by William Mallard, Gerry Doyle, Elaine Hardcastle)