TOKYO—
Foxconn
2317 -1.44%
Technology Group is planning to shift some production from its Covid-struck iPhone factory in central China to other sites in the country, people familiar with the matter said, as many workers frightened by the outbreak have left the factory.
Foxconn has been struggling to contain a Covid-19 outbreak in its Zhengzhou facility, the world’s biggest assembly site for
Apple Inc.’s
AAPL -1.32%
smartphones. There, hundreds of thousands of workers have been largely shut off from the outside world for more than two weeks after the company announced the introduction of closed-loop operations, which means that workers are allowed to move only between their dorms or homes and the production lines.
Some workers have refused to go back to work for the fear of catching Covid, while others have left the site, The Wall Street Journal has reported. In recent days, videos geotagged near the Foxconn site went viral on China’s social-media platforms, recording groups of people walking on highways or through farm fields carrying their luggage.
Still, Apple and Foxconn executives expect that impact from the disruption at Zhengzhou on overall iPhone shipments would be limited in the short term, partly because Foxconn’s sites in the southern Chinese city of Shenzhen are already equipped to produce some of the latest iPhone models, the people familiar with the matter said. Foxconn will shift some of its Zhengzhou iPhone production capacity to Shenzhen, they said.
About 10% of the global iPhone production capacity is likely to be affected with the disruption, according to analysts, including Ming-Chi Kuo, who follows Apple’s supply chain at TF International Securities. Last week, Apple’s chief financial officer said that supply is constrained for the new iPhone 14 Pro models amid strong demand.
A Foxconn spokesman referred to a statement issued Sunday, in which it said the company is providing transportation services for workers who want to leave. Apple didn’t reply to a request for comment.
The disruption at Foxconn is among the latest examples of the economic and societal toll from China’s rigid pandemic control policies—which include swift and sweeping lockdowns, mass testing, compulsory quarantines and, in certain cases, business closures.
Apple’s flagship store in Shanghai. The company has told its suppliers to plan on increasing production outside China.
Photo:
Cfoto/Zuma Press
On Monday, Shanghai Disney Resort, including the theme park and shopping areas, were closed again under the city’s Covid restrictions, the resort said. Earlier this year, Shanghai Disneyland, which is part of the resort, was shut for months under the earlier blanket lockdown of the city. Universal Beijing Resort closed for deep cleaning last week after at least one positive case was traced to the theme park.
Foxconn’s situation also highlights the potential risks of Apple’s heavy dependence on China for manufacturing. Apple told some of its contract manufacturers earlier this year that it wants to boost production outside China following a two-month lockdown in Shanghai that disrupted Apple’s supply chain.
In recent days, Apple has told its suppliers to more actively plan on increasing production outside China, the people said.
Apple’s supply chain plays a major role in China’s manufacturing industry, providing millions of jobs directly and indirectly. Foxconn—Apple’s biggest supplier—shipped about $32 billion of products overseas from Zhengzhou in 2019, making its branch in the city the country’s largest exporter, according to the Statistics Association for Foreign Economic Relations and Trade of China, a government-backed think tank. Altogether, the Foxconn group accounted for 3.9% of China’s exports in 2021, the company has said.
Foxconn’s Zhengzhou site consists of several plants as well as dorms and amenities such as canteens. The company has said it employs as many as 300,000 workers there.
Meanwhile, Foxconn’s Shenzhen campus also produces some iPhones. Besides assembling products, the site serves a key role for Foxconn in preparing for mass-production of some new products. Shenzhen is where the contract assembler often first translates a brand’s product blueprints and prototypes into a detailed manufacturing plan, according to the people.
Since the pandemic started in early 2020, Beijing has repeatedly said the virus is too potent to allow any easing of its zero-Covid policy. Still, businesses such as Foxconn must convince their employees that there is little risk coming to work when there are signs of an outbreak.
Foxconn, formally known as Hon Hai Precision Industry Co., is seeking to allay employees’ fears. On its account on social media
WeChat,
Foxconn posted an audio clip of a recovered Covid patient, who likened the symptoms to catching a cold.
“I had called my family and I had also cried,” the person said in the clip, posted on Sunday. “But I didn’t even cough.”
The post also links to a government website page from last week that interviewed a local epidemiologist, who explained that the current infection in the Zhengzhou area was of Omicron BA5.2, an infectious variant with mostly light symptoms.
—Wenxin Fan contributed to this article.
Write to Yang Jie at [email protected]
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