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Foxconn’s disruptions threaten iPhone shipments, weighing heavily on Apple stock

Foxconn's disruptions threaten iPhone shipments, weighing heavily on Apple stock
  • Foxconn Zhengzhou factory shipments drop in November – Source
  • Discontent with workers at the factory escalated into protests this week
  • More than 20,000 workers, most of them new recruits, have left – The Source

TAIPEI, Nov. 25 (Reuters) – Foxconn (2317.TW) A source familiar with the matter said on Friday that the main iPhone factory in China will see a further drop in November shipments after the latest wave of worker unrest this week, with thousands of employees quitting.

The largest Apple company in the world (AAPL.O) The iPhone factory is grappling with tough COVID-19 restrictions that have sparked discontent among workers and disrupted production ahead of the Christmas and Lunar New Year holidays in January, as many workers were isolated or fled the factory.

After Wednesday’s escalation that witnessed Workers clash with security menThe source said Foxconn could now see more than 30% of the site’s production affected in November, up from an internal estimate of as high as 30% when labor issues erupted in late October.

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 Corporation, declined to comment. Apple, which said Thursday it has employees at the factory, did not respond to a request for comment on Friday.

“Worker unrest at the Foxconn factory in China could affect Apple’s iPhone shipments for November,” said Victoria Scholar, chief investment officer at Interactive Investor, as concerns grow about Apple’s ability to deliver products in the busy holiday period.

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Apple shares fell 1.9% in late morning trading on Friday, while the benchmark Nasdaq fell 0.3%.

Scholar added, “Apple continues to be seen as one of the more resilient stocks in the tech sector… However, Apple continues to refrain from providing official guidance given the macroeconomic uncertainty.”

US Best Buy Co Inc (BBY.N) It said on Tuesday that it expects a shortage of high-end iPhones in stores this holiday season. Analysts said iPhones in Apple stores in the United States during the Black Friday shopping season also fell short of a year earlier, and it took longer to replenish stocks, Reuters reported this week.

Footage uploaded to social media showed hundreds of workers joining protests at China’s main iPhone factory Zhengzhou this week, with some men smashing security cameras and windows.

Fewer shipments

KGI Securities analyst Christine Wang said that if the current issue continues through December, about 10 million units of iPhone production will be lost, which translates to a 12% drop in iPhone shipment in the fourth quarter of 2022.

Wedbush Securities estimates that many Apple Stores now have 25% to 30% less iPhone 14 Pros than usual for the holiday shopping season.

In a statement released on November 7, Apple said it expects lower shipments of the iPhone 14 Pro and iPhone 14 Pro Max than previously expected.

Some of the new recruits hired by Foxconn in recent weeks have claimed they were misled about compensation benefits at the factory, and others have complained about sharing dormitories with colleagues who test positive for COVID.

Foxconn on Thursday apologized for a “technical error” related to wages when hiring and later offered 10,000 yuan ($1,400) to protest new recruits who agreed to quit and leave.

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The source said that more than 20,000 workers, most of whom are new employees who have not yet worked on production lines, have taken the money and left. Videos posted on Chinese social media on Friday showed crowds and long lines of workers laden with luggage lining up to wait for buses.

One wrote: “It’s time to go home.”

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

Another Foxconn source familiar with the matter said some new employees had left campus, but did not say how many. This person said that since the people leaving had not yet been trained or started working, their departure would not cause more damage to the current production.

“The accident has a big impact on our public image, but it has little impact on our (current) capacity. Our current capacity has not been affected,” the source said.

This person said, referring to other worker disruptions caused by the strict COVID restrictions, including disruptions at another Apple supplier, Quanta. (2382.TW)in May.

Foxconn shares closed down 0.5%, lagging the broader market. (.TWII) which finished flat.

($1 = 7.1616 CNY)

Reporting by Yimou Lee; Additional reporting by Brenda Goh, Yohan M Cherian, Tyachi Datta and Aditya Soni in Bengaluru; Editing by William Mallard, Gerry Doyle, Eileen Hardcastle

Our standards: Thomson Reuters Trust Principles.