Apple fell into the trap it created ofiPhone City.
The shares of Big Tech USA continue to be attacked by the sells, plunging on Wall Street to the new low of the last 52 weeks, and confirming among the illustrious victims of Made in China.
China, which multinationals from all over the world have flocked to in recent decades to produce at lower costs than in their respective countries of origin, it has itself become, by now, a trap: first, for the Zero Covid policy launched to stem Covid infections, based on lockdowns and severe restriction measures that have resulted in the closure of several factories.
Apple struggling with free everyone policy in China
Now, for a few weeks, due to the sudden decision of the Beijing government of abandon the zero tolerance policy towards the pandemic and to opt for some sort of ‘free all’. Too bad that ‘free all’ is translating into a boom in infections, chaos in hospitals clogged with patients, rows of hearses in front of crematoria. So much so that there was also the case of Chinese funeral giant that celebrated on the Hong Kong Stock Exchange.
A new study drawn up by Hong Kong researchers and published by Bloomberg on December 15 revealed that, with the Beijing government rapidly abandoning the restrictions previously imposed to contain infections, Covid-19 victims in China could be nearly 1 million.
And a shocking article published in Bloomberg on December 23 indicated how it is possible that they were nearly 37 million people in China infected with the virus in just one day, as they are likely to have been 248 million people have contracted the virus in the first 20 days of December.
For Apple, the danger now is that the leap in infections forces you to stay at home or in hospitals the employees of the “iPhone City”, the plant located in Zhengzhou, China, managed by Hon Hai Precision Industry (Foxconn) where they are assembled the components for the production of iPhone 14 and iPhone 14 Pro Max.
Already at the end of November Bloomberg had reported some rumors, according to which Apple and Foxconn had worsened the forecasts on the decline in production of Apple’s iPhones, in the Zhengzhou plant, estimating a lack of production of 6 million iPhone Pros.
Apple itself had revised downwards earlier production estimates of the iPhones 14 from 90 million units previously expected at 87 million.
Apple: stock at June 2021 lows
Apple’s crisis is all told by the trend of the stock, which yesterday, at the beginning of the trading day on Wall Street, was already recovering from a succession of sells that had led it to slide to the lowest value since June 2021.
With yesterday’s drop of about 3%, AAPL stock plunged to new lows.
Since the beginning of December, AAPL shares lost 12.4%, suffering the worst monthly performance since the -12.8% drop recorded in May 2019.
Since the beginning of the year, the decline is as much as – 27%. Of course, a decidedly less negative balance compared to the other Big Tech Tesla, which is about to end 2022 with a thud of about 70%, and also with respect to the index Nasdaq Composite, poised for a 34.7% YTD plunge.
But the fear of other interruptions in the production of the maxi factory in Zhengzhou also known as iPhone City casts shadows not only on the future trend of the title, but also on the strategy of the American giant, which relied far too much on made in China.
In the last hours research firm TrendForce has corrected the estimates relating to total deliveries of iPhone 14 models related to 2022 at 78.1 million units, slightly up on the previous 78 million expected.
Good news? If it is, it is accompanied by other not at all comforting news.
The slight upward revision reflects Beijing’s decision to ease the tightening measures. At the same time, TrendForce itself announced that it believes that absences from the workforce due to illness will drop Apple’s fiscal first-quarter shipments 22% to 47 million.
Nell’iPhone City, still detected Trendforcecapacity utilization also has yet to plateau a value greater than 70%.
A threshold that is seen almost as Mission Impossiblebased on the latest available data.
Nightmare iPhone City: employees trapped with Covid chaos
Last November 30th l’iPhone City was the scene of strong protests by workers, who they tried to flee the campus.
On November 23, an employee expressed himself as follows:
“I’m really scared right now, we could all be Covid positive. You are condemning us to death.”
In early December, Foxconn reported that the Zhengzhou plant would recover “full production” within the month of January.
According to what was reported by CNNthe iPhone City can accommodate 200,000 workers, who live in the structure, resting in the dormitories of the area.
The area came into the spotlight as recently as October when some employees have decided to leave the campus, worried about the spread of Covid.
Short-staffed, Foxconn has even offered bonuses to get employees to come back.
Protests, however, erupted as new hires they accused the leaders of not keeping their promises.
Clashes with security forces followed, then subsided by the time Foxconn directly offered cash to protesters to get them to leave iPhone City.
Amidst employee furloughs and protests, Wedbush Securities analyst Dan Ives estimated that the outages that had hit the Foxconn campus they were causing Apple to lose $1 billion a week, in terms of lost iPhone sales.
And Ming-Chi Kuo, an analyst at TF International Securitieswrote on social media that he expected iPhone shipments to be 20% lower than expected in the October-December quarter, estimating average capacity utilization at the Zhengzhou plant. equal to just 20% in November, and 30-40% in Decemberin view of the easing of restrictions.
The new question, however, is the following: loosen the restrictions, how can production capacity be expected to improve if the boom in Covid infections will it force so many Chinese to be confined to their homes due to illness or worse, to be transported to hospitals?
The spread of the virus in the Zhengzhou factory is slowing down the production of iPhones, making it difficult if not impossible for Apple’s offer to be able to meet demand.
iPhone City is, in fact, the only site where they are assembled the new Pro models of the iPhones.
Looking ahead, Apple has consequently decided to resort to another source to assemble its next model iPhone 15 Pro Max, choosing Luxshare.
However, Luxshare’s only iPhone assembly plant is located in China.
In Vietnam, the Luxshare group has a plant to assemble Apple accessories, but currently has no plans to create in the country a new production line for iPhones.
Trapped for now in her iPhone City made in China, grappling with the Covid nightmare, Apple is aiming to double available manufacturing capacity in India during 2023, according to TrendForce.
TrendForce therefore believes that at least 30-35% of Apple’s manufacturing capacity in China it will have to be transferred to Vietnam and India, also due to the trade tensions that continue to stain relations between China and the United States.
A few days ago it caused a cry of scandal the publication of an article on the Rest of World website who, in describing the conditions of the Zhengzhou plant – which is the largest in the world for the production of iPhones – revealed that some workers were forced to continue assembling smartphones even after testing positive for Covid.
Equipped with masks, the uninfected workers revealed that the measure was not enough, given that the employees eight of them all sleep together in dormitory rooms.
Seven iPhone City employees confirmed to Rest of World that you have contracted the virus after starting work in the factory in December.
To three of them was asked to stay at work despite developing symptoms.
Until the zero tolerance policy towards Covid was active – that is until recently – manufacturing companies relied on the so-called system “closed-loop”: a system based on the isolation of workers within the plant campuses and on the obligation to undergo the anti-Covid test every day.
Now that the restrictions have been lifted, to the workers of iPhone City have been asked to waive sick days in order to continue producing iPhones.