Be careful if you were planning to buy an iPhone 14 for the holiday season: Apple is facing a drop in production in China. And the flagship smartphone could be very difficult to find in the coming weeks…
Lhe problems continue to plague the American giants of new technologies! Many companies, such as Meta, Snapchat, Amazon, Stripe and Lyft, have been forced to lay off their employees and/or freeze hiring due to inflation. It’s Apple’s turn to face significant difficulties, in a completely different register. If the firm is still doing very well, it is causing controversy, whether it is because of the increase in the prices of its services, the advertising that invades the App Store, the tracking of users or… a shortage iPhone 14 for the holiday season. Indeed, the Foxconn factory located in Zhengzhou, which mainly produces the new iPhone 14 Pro and 14 Pro Max – it is not for nothing that it is nicknamed iPhone City – faces strong protests from of its employees. The latter refuse to continue working with the Zero Covid policy led by the Chinese government, which forcibly confines them to the factory and requires them to continue working in disastrous conditions. Consequently, iPhone 14 production is greatly reduced, and not everyone will have their precious smartphone for Christmas.
iPhone 14: production reduced by 20%
Since the beginning of November, China’s main iPhone manufacturing plant, located in China, has sharply reduced its production of smartphones following a new wave of Covid-19. Chinese authorities have enforced their Zero Covid policy – which has remained extremely strict compared to those of other nations – and confined all employees there, who are crammed into dormitories and can no longer move freely. The problem is that some employees are forced to continue working, despite the very high risk of contamination. Around mid-November, violent protests began to erupt. Hundreds of workers have rebelled against their inhumane living conditions in iPhone City due to the enforced lockdown. The strong tensions with the police have also caused damage, part of the infrastructure of the factory, including gates, having been set on fire. And that’s not counting the departure of nearly 20,000 employees, who simply fled on foot. Many videos have circulated on social networks, showing a crowd of people loaded with heavy suitcases climbing the fence that surrounds the factory.
This protest movement – which has also spread to the rest of China and targets the Communist Party – has cut iPhone 14 production by at least 15%, if not 20%, as reported by the Ming-Chi Kuo analysis – analysis joins that of the experts of the American bank Morgan Stanley, as underlined Bloomberg. In normal times, Apple produces an average of between 80 and 85 million smartphones each quarter. With the closure of several sites, this production would drop to 70 to 15 million – a significant drop of 20%. The Zhengzhou plant currently has only 20% of its operational workforce. Apple hopes to increase to 30-40% in mid-December. To try to rectify the situation, the company would have entrusted 10% of the production to Pegatron and Luxshare but the first deliveries would not be expected before the end of December, but nothing is yet decided, especially since the demonstrations rather tend to take momentum. But even in positive scenarios, stock shortages are to be expected on the official apple website and at resellers.
Apple: a strong dependence on China
This shortage comes at the worst time for Apple, as the holiday season is when the companies make the biggest chunk of their sales. Ming-Chi Kuo estimates that the firm’s turnover in the iPhone market could be 20% to 30% lower than expected – which generally accounts for a significant share of Apple’s income. The blow is all the harder since there will be no postponement of sales, which will be definitively lost due to long delivery times and the economic recession, which will prevent a later purchase – especially since iPhones 14 are among the most expensive smartphones on the market…
But Apple is not in the red so far, far from it! The firm has cash available immediately in cash (free cash flow) of more than $111 billion. However, these events are indicative of its dependence on Chinese infrastructure – something that had already been problematic during the first wave of Covid-19, which had paralyzed the whole country. This is why it is seeking to diversify its supply chain, particularly in India and Vietnam – which is all the more judicious as the tensions between the United States and the Chinese government are increasingly acute. However, building such efficient and well-equipped factories will require a lot of time and money.