Apple could move parts of its production out of China after government protests delay products and the company is eyeing Vietnam and India as new hubs.
Apple has accelerated plans to move its productions outside of Zhengzhou, China — where iPhone City is located — in recent weeks, a source involved in the discussions told the company. Wall Street Journal (WSJ).
COVID-19 protests and wage disputes have erupted in the city, which employs up to 300,000 workers, shattering Apple’s busiest time of the year with production and delivery delays.
Consumers are facing the longest wait times in the iPhone’s 15-year history, with shipping dates estimated after Christmas, WSJ said. In addition, Apple’s Q4 productions are about 10 million less than expected, with iPhone Pro and Pro Max the hardest hit.
In November, the company released a statement that iPhone backups could take place due to health restrictions in Zhengzhou.
It now looks to India and Vietnam to become less dependent on Taiwan-based assemblers led by Foxconn Technology Group.
Tim Cook’s company, Apple, wants to source some of its production from China amid COVID-19 protests and wage disputes slowing productions during the busiest time of the year
Apple’s Zhengzhou factory – known as iPhone City – is only running at about 20 percent, but could rise to 40 percent this month after China quarantined millions of people following a protest. Apple customers are facing the longest wait times in the phone’s history and shipping dates are estimated to extend past Christmas
However, the countries could present a problem for new manufacturing introduction (NPI) as it does not have the number of manufacturing engineers and suppliers to build hundreds of millions of products as China has.
iPhone City, based in Zhengzhou, made about 85 percent of the Pro lineup at one point.
But analysts told WSJ that Apple is no longer comfortable with most of its business cooped up in one place.
“In the past, people didn’t pay attention to concentration risk,” former US Foxconn executive Alan Yeung told WSJ. “Free trade was the norm and things were very predictable. Now we have entered a new world.’
According to Ming-chi Kuo, an analyst with TF International Securities, Apple hopes to ship 45 percent of its products from India in the long term, which is currently operating in single digits.
And Vietnam could largely handle production of AirPods, smartwatches and laptops, WSJ reported.
However, the company could still maintain a large presence in China — which has provided about 1 million local jobs, according to the state-backed People’s Daily — by using other supplies. Two companies Apple is reportedly considering are Luxshare Precision Industry Co. and Wingtech Technology Co.
Foxconn, which runs the Chinese factory, shipped $32 billion worth of products in 2019, but Apple is reportedly looking to shift to India and Vietnam. Apple hopes to ship 45 percent of its products from India in the long term, which is currently only doing single digits
Foxconn, which runs the Zhengzhou factory, shipped $32 billion worth of products in 2019 and will account for nearly four percent of China’s exports by 2021, according to People’s Daily.
Despite the tensions between Beijing and Taiwan, in which the US is politically involved, the country still looks fondly on Apple’s presence in the country, the People’s Daily reported.
Despite China easing some of its COVID-19 restrictions due to ongoing protests, Apple’s factory is still missing many workers. Numbers are numbers, but according to WSJ it is estimated to be thousands to tens of thousands of employees.
Kuo estimated it’s running at about 20 percent capacity, but it could be as high as 40 percent this month.
Foxconn has tried to move some production to its Shenzhen factory, which is about 1,000 miles from the main plant, but cannot bridge the entire gap, according to WSJ.
COVID-19 restriction protests (pictured) have recently broken out, in a rare display of government defiance in the communist country
A protest broke out near the factory and the government ordered a five-day quarantine
And now Foxconn is offering financial incentives to get workers back at the factory by offering a $1,800 bonus in January to any full-time employee who started in November or earlier. Those who wanted to quit were paid a reported $1,400.
Last week, China locked up six million people after hundreds of workers took to the streets in Zhengzhou.
Beijing’s move to quell dissent came after footage of the protests went viral and as China’s coronavirus case count hit an all-time high — nearly three years after the pandemic and zero-COVID-19 approach of the Chinese Communist Party.
In a rare display of public anger, workers — outraged by COVID-19 isolation policies and working conditions — violently clashed with hazmat-clad staff brandishing batons.
In the wake of the unrest, residents of eight districts of Zhengzhou, home to 6.6 million people, were told to stay at home for five days from Thursday “unless necessary” — to buy food or receive medical treatment.
Daily mass testing was ordered in what the city government called a “war of annihilation” against the virus. The restrictions do not apply to the iPhone factory, where workers have been under COVID-10 restrictions for weeks.
Workers (pictured in August) line up to get tested for COVID-19 at the Foxconn factory in Wuhan, central China’s Hubei province. Workers at the Zhengzhou iPhone factory have faced COVID-19 restrictions for weeks and have taken to the streets over their working conditions
In addition, Apple faces the struggle of India and Vietnam to handle the amount of production that China can handle, with Vietnam having only one 10th the population that China has and only a factory employing 60,000 people compared to 300,000.
“They don’t make high-end phones in India and Vietnam,” former Foxconn executive, Dan Panzica, told WSJ. “No other places can do them.”
While India has the number of people, government coordination isn’t as good as China’s, leaving Apple with vastly different regional government restrictions in the country.
“India is the Wild West in terms of consistent rules and loading and unloading,” Panzica said.
Panzica believes that in order to succeed in diversifying its business, Apple will have to rely on “spreading out and making more towns instead of big cities.”