China’s Zhengzhou, home to world’s largest iPhone factory, ends Covid lockdown

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CNN Business

The central city of Zhengzhou, China, home to the world’s largest iPhone factory, lifted a five-day Covid lockdown, in a move analysts called a much-needed relief for Apple and its main supplier Foxconn .

Zhengzhou is the site of « iPhone City », a sprawling manufacturing campus owned by Taiwanese contractor Foxconn that is normally home to around 200,000 workers producing products for Apple (AAPL), including the iPhone 14 Pro and 14 Pro Max. Last Friday, the city locked down its urban neighborhoods for five days as Covid-19 cases surged there.

The massive Foxconn facility is not part of the city’s urban neighborhoods. However, analysts say the lockdown would have hurt efforts to restore lost production on campus, the site of a violent labor revolt last week.

« This is good news in a grim storm for Cupertino, » Daniel Ives, managing director of equity research at Wedbush Securities, told CNN Business, referring to the California city where Apple is based. « There’s a lot of heavy work for Apple to get the factories going again. »

Ives estimates that ongoing supply disruptions at Foxconn’s Zhengzhou campus were costing Apple about $1 billion a week in lost iPhone sales. The unrest began in October when workers left the campus in Zhengzhou, the capital of central Henan province, due to Covid fears. Short-staffed, bonuses were offered to workers to return.

But protests erupted last week when newly hired staff said management had reneged on promises. The workers, who clashed with security guards, were eventually offered money to quit and leave.

Analysts said Foxconn’s production issues will accelerate the pace of supply chain diversification from China to countries like India.

Ming-Chi Kuo, an analyst at TF International Securities, wrote on social media that he estimates iPhone shipments could be 20% lower than expected in the current October-December quarter. The Zhengzhou plant’s average capacity utilization rate was only about 20% in November, he said, and is expected to improve to 30% to 40% in December.

Total iPhone 14 Pro and 14 Pro Max shipments in the current quarter would be 15 to 20 million units lower than expected, according to Kuo. Due to the high price of the iPhone 14 Pro series, Apple’s overall iPhone revenue in the current holiday quarter could be 20 to 30 percent lower than investors’ expectations, he added.

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