What's next for Foxconn and Apple after iPhone factory clashes?

What’s next for Foxconn and Apple after iPhone factory clashes?

In Zhengzhou, China, sits a state-of-the-art facility built several years ago to serve a single global source: Apple, now the world’s most valuable company and one of China’s largest retailers. The sprawling manufacturing complex, operated by Apple’s manufacturing partner Foxconn, is known as iPhone City. As of early this week, much of the 200,000-strong workforce has already spent weeks in enforced isolation in rubbish-strewn dormitories.

Since October in fact, these employees have been living on meager rations because management wanted to continue producing iPhones while containing the Covid-19 outbreak and enduring a very strict Covid Zero policy. On a normal day, Foxconn’s massive factory could produce 500,000 iPhones a day — but that hasn’t been the case recently, especially after Apple launched The latest batch of iPhones in September.

Why is China so important to Apple?

No American company is as profitable in China as Apple. While few ever make that much money, Apple generated $68.4 billion in revenue in Greater China during fiscal 2021, mostly from selling iPhones. The tech giant even became the largest OEM in China that same year, taking 23% of the market share, the highest ever. Few countries have as much power as China to shape Apple’s fortunes.

But in China, Apple is not strong alone. Its meteoric rise has a lot to do with its partnership with the largest contracting complex for smartphones and other electronics in the world – Foxconn, the Taiwanese giant formerly known as Hon Hai Precision Industry. Foxconn isn’t just a subcontractor to Apple, its fortunes are still very much intertwined with the US company’s.

What’s going on in iPhone City?

Tensions that had been brewing since October led to this Wednesday, when hundreds of Foxconn factory workers were furious when they learned that they might not get the wages they were promised unless they kept their jobs throughout the Spring Festival and into the middle of it. In March, he sparked a riot, which led to a physical confrontation with the police.

The violence that culminated on November 23 demonstrated the inadequacy of this effort, while also exposing the futility of China’s Covid strategy. Throughout the pandemic, the Chinese Communist Party has shown a willingness to go to extremes in its anti-Covid efforts. Companies such as Foxconn Technology Group and Tesla Inc. to cut off their facilities from the outside world, then continue to operate them as “closed-loop systems,” according to a report by bloomberg pointed out.

For context, Taiwan’s Foxconn, Apple’s main manufacturing partner, independently operates iPhone City. She admits she made mistakes in managing the staff there, while blaming local officials for unpredictable policies that made meal delivery and maintenance nearly impossible. bloomberg he said, quoting a person familiar with the company.

Apple said iPhone production has also continued to decline since October thanks to a “significant capacity drop”. The company added that its production problems mean that customers will face longer waiting times between the purchase and delivery of the iPhone 14 Pro and 14 Pro Max. Although Apple has repeatedly said that Covid-19 restrictions have caused billions of dollars in supply issues throughout the pandemic, it has never issued such a warning outside of earnings calls since February 2020.

The factory closure in Zhengzhou is actually the second shutdown to affect Apple this year. It lost about 4 billion US dollars in sales iPads and Macs During the spring and summer seasons, according to estimates, After closing factories outside Shanghai To reduce the spread of Covid-19. So one can only imagine how much Apple costs everything that happens at its largest factory for its iPhone — after all, it’s a factory that accounts for more than half of the phone’s annual sales.

Zero-Covid policy hurts manufacturing

The truth is, as long as China does not back down Zero covid policy, would have a huge impact on Foxconn and Apple because these premium phones were the last area of ​​the smartphone market that was in demand. As of now, people are fed up with China’s policy of not spreading Covid – which is why protests broke out in Zhengzhou. Indeed, the ruling Communist Party is facing growing frustration over frequent, if not expanded, restrictions in regions across China.

In fact, when Foxconn shut down its factory in Zhengzhou, some factory workers went to extremes to flee the facility and began marching home across the countryside. Pictures and videos of them leaving went viral across social media. But Foxconn couldn’t afford to lose employees, so the company responded by offering workers an extra $14 a day to keep working. These payments were later increased to $55 per day.

By early this month, Foxconn’s offer had risen to 10,000 yuan ($1,400) for newly hired employees who wanted to quit and go home. Kaylinch reported, citing anonymous recruiting agents. But many stayed – until this week at least. On Wednesday, workers were heard on video saying Foxconn had failed to deliver on its promise of an attractive bonus and salary package after they arrived to work at the plant.

bloombergAlicia Garcia Herrero, chief economist for Asia Pacific at Natixis, was quoted as saying that while Foxconn’s problems have attracted the most attention because of the company’s importance and size, its struggles also suggest that others may have more problems at work. Within the standards of China’s policies. “You see cases like Foxconn, and every company now is asking itself, ‘Will this happen to me?'” ”

“Any company that relies on manufacturing has to consider the alternatives. It will be expensive, but it will be less expensive than just relying on China and then China won’t open up.” Herrero even suggested that China’s economy could take anywhere from a year to 18 months to open up, and that could spell doom for both Apple and Foxconn. The positive side is that Apple, under the leadership of Tim Cook, is developing alternatives in its supply chains.

Aggregation partners such as Foxconn are now More iPhone 14 models made in India than any previous generation, and they are beginning to use the country as an export base. The same Taiwanese giant is too Expansion into Vietnam and Thailand, for further support of Apple.

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