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

By | November 30, 2022

Hong Kong
CNN Business

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

Zhengzhou is home to β€œiPhone City,” a sprawling manufacturing campus owned by Taiwanese manufacturer Foxconn, which is typically 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 districts for five days, due to rising cases of Covid-19.

Local authorities also lifted lockdowns in four districts of Guangzhou on Wednesday, Zhang Yi, a spokesman for the Guangzhou health commission, told a press conference. The relaxation of restrictions imposed earlier this month at the manufacturing and transportation hub came after residents clashed with police on Tuesday. Videos circulating on social media show residents shouting “lift the blockade”.

Guangzhou will stop sending all close contacts of Covid-19 patients to central quarantine facilities and allow some to self-isolate at home, Zhang said. The city will also no longer roll out mass Covid-19 testing across the district. “All districts should carry out tests in a scientific manner,” added Zhang.

Foxconn’s huge facilities are not part of Zhengzhou’s urban districts. However, analysts say the lockdown would have been detrimental to efforts to restore lost production on the campus, the site of a violent workers’ revolt last week.

“This is 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 get factories back on track.”

Ives estimated that the continued outages at Foxconn’s Zhengzhou campus were costing Apple about $1 billion a week in lost iPhone sales. The problems started in October, when workers left the campus in Zhengzhou, capital of central Henan province, due to Covid-related fears. With few employees, bonuses were offered to workers to return.

But protests erupted last week when newly hired staff said management had broken its promises. The workers, who clashed with the security agents, ended up receiving money to resign and leave.

Analysts said Foxconn’s production problems will accelerate the pace of supply chain diversification from China to countries such as 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 average capacity utilization rate at the Zhengzhou plant was only around 20% in November, he says, 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 million to 20 million units less than previously forecast, according to Kuo. Due to the high price of the iPhone 14 Pro series, Apple’s overall iPhone revenue in the current holiday quarter may be 20% to 30% lower than investors’ expectations, he added.

β€” Laura He and Wayne Chang in Hong Kong, and Xiaofei Xu in Paris, contributed to this article.

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