Foxconn chaos to leave Apple short 6 million iPhone 14 Pro and Pro Max units this year
We've closely monitored the events taking place at Foxconn's largest iPhone assembly facility in Zhangzhou, China. The factory reportedly produces half of the iPhone units made worldwide and this year the plant is turning out iPhone 14 Pro and iPhone 14 Pro Max models. But production has slowed thanks to the exodus of workers who weren't enamored with China's COVID lockdown in the city.
A Chinese COVID crisis will leave Apple 6 million iPhone 14 Pro and Pro Max units short this year
COVID has returned to China forcing the country to lockdown certain areas. As a result, Foxconn now bans the consumption of meals in the communal dining room forcing everyone to eat in their dorm. Workers also felt closed in, forced to stay on campus 24/7. After a large number of workers escaped, even Apple had to admit that the production of its pricier iPhone 14 Pro models this quarter would be less than expected. Apple did not specifically give an estimate of how many units it will be short but it did say, "customers will experience longer wait times to receive their new products." Some reports called for as much as a 33% shortfall.
Foxconn produces the vast majority of iPhone units every year
Foxconn tried to entice new and former workers to man the assembly lines by offering bonuses for employees who stay for 30 and 60 days, and the Chinese government asked veterans and Communist party members to recruit new employees for Foxconn. And all of these things, the bonuses and the pressure from the government might have worked until last Tuesday night. That's when a major clash between workers and security guards at the Foxconn grounds in Zhengzhou took place.
Workers said that the contracts they were offered would have paid them bonuses only after more than 60 days had gone by, and the employees also said that they weren't being separated far enough away from older workers who might have COVID. In an attempt to quell the violence, Foxconn offered new employees cash to quit their jobs and leave the Foxconn campus. The company later said that a "technical error" was made relating to the bonuses and it apologized. Supposedly, 20,000 workers took the offer.
Wait times for iPhone 14 Pro models was already at "extreme levels" in the U.S. and China
Today, a new report from Bloomberg gives us a better idea about how Apple will be impacted by the chaos we've seen in Zhengzhou. The report indicates that Apple will be short nearly 6 million iPhone 14 Pro units this year. And make no mistake about it, the iPhone 14 Pro and iPhone 14 Pro Max are the more expensive 2022 iPhone models. Apple could take a $6 billion revenue hit during the current quarter. That would be 8.4% of the $71.6 billion in iPhone revenue generated during the fiscal first quarter of 2022 (October-December 2021).
Considering that this shortfall would occur during the holiday shopping season, consumers worldwide could end up frustrated in their attempt to purchase one of the 14 Pro models as a holiday gift. Two weeks ago, even before the issues in Zhengzhou reached a fever pitch, UBS analyst David Vogt said that wait times for the iPhone 14 Pro and iPhone 14 Pro Max in the U.S. and China had hit "extreme levels." In the U.S., the wait time was 34 days for these models while in China the wait was up to 36 days.
Vogt pointed out that 35% to 40% of Apple's calendar fourth quarter iPhone production is assembled during December which could lead to shortages during the fourth quarter of this year and extending into the first quarter of 2023. The analyst expects Apple to ship 83 million iPhone units during the fiscal first quarter of 2023 which already takes into account "recent disruptions."
However, Vogt made this comment before the violence broke out at the factory and before Foxconn paid 20,000 workers to leave the facility. If he does have a new updated figure, we will update this story.
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