Apple Q1 2023 revenue seems certain to be badly hit following disruption to iPhone 14 production, with a Foxconn source today saying that production is not expected to return to normal levels until late December, or early January.
The company says that the COVID-19 outbreak within its biggest plant has now been “brought under control,” but did not give any official timeline for restoring full production …
Background
Zhengzhou, colloquially known as iPhone City thanks to being home to the world’s largest iPhone assembly plant, was placed into lockdown two weeks ago – with most of the city reopening late last week.
In an attempt to reduce the economic impact of lockdowns, large factories are allowed to remain open by switching to closed-loop production, where workers remain on the campus 24/7 for up to a month at a time, sleeping in shared dormitories. This is obviously tough on workers, who are separated from their families and have very limited leisure opportunities.
In the case of Foxconn’s plant, things got very much worse when there was an outbreak of COVID-19 within the campus itself. Workers complained about a lack of food and medication. Significant numbers chose to break out of the plant and return to their home towns. Subsequent bonus offers had limited effect, and failure to pay them led to violent protests. Attempts to appease workers with compensation saw more than 20,000 workers leave.
Even after the Zhengzhou lockdown ended, Foxconn continued closed-loop production, likely in an attempt to contain the COVID-19 infection within the campus until everyone was testing negative.
iPhone production will be low for another month
Reuters reports that Foxconn has stated that the COVID-19 outbreak is now under control, and it is working to ramp up iPhone output.
“At present, the overall epidemic situation has been brought under control with November being the most affected period,” the company said in a statement, adding it has started to recruit new employees and was gradually “restoring production capacity to normal.”
While the company is being vague about timings, a Foxconn source says it will take at least another month to get back on track.
Foxconn expects its COVID-hit Zhengzhou plant in China to resume full production around late December to early January, a Foxconn source said on Monday, after worker unrest last month disrupted the world’s biggest iPhone factory.
Apple Q1 2023 revenue seems certain to be badly hit
Foxconn has been equally vague about the extent of the production shortfall, and Apple also declined to comment on numbers. That’s left us with analyst estimates of the extent of the lost production, which has ranged from around 6M units to more than 20M units.
However, three things are known:
- Things are bad enough for Apple to issue a rare official stock warning.
- Foxconn has warned of “negative growth” this quarter.
- iPhone 14 Pro delivery dates slipped to after Christmas as early as mid-November.
That makes it seem pretty certain that Apple’s revenue for the holiday quarter – the company’s fiscal Q1 – is going to be badly hit.
Longer-term impact unclear
Less certain is the impact into the first quarter of 2023. The most pessimistic view is that four factors could see the lost holiday quarter sales completely disappear. Personally, I’m extremely skeptical about that idea. Some sales will of course be permanently lost, but I doubt that it will amount to anything like a majority of them.
Even if I’m right, however, there will be a lot of missed ground to make up. Foxconn will not only have to get back to its original planned production volumes but significantly exceed them to make up for the shortfall. How long it will take to do that is as yet completely unknown.
Also uncertain is how long China will persist it its COVID Zero policy – which sees entire cities placed into strict lockdown after just a handful of positive tests – in the face of growing unrest. Protests have been taking place across the country, with signs of a growing pro-democracy movement.
Author: Ben Lovejoy
Source: 9TO5Google
