Apple plans to LEAVE China as COVID protests delay product production

Apple plans to move some of its production out of China after violent government protests delayed production at the company – as CEO Tim Cook eyes Vietnam and India as new hubs.

The tech giant has accelerated its plans to exit Zhengzhou, China — home of iPhone City — in recent weeks, a source told The Wall Street Journal.

COVID-19 protests and wage disputes have erupted in the city, which employs up to 300,000 workers, leaving Apple’s busiest time of year in shambles with production and delivery delays.

Consumers are facing the longest wait times in the iPhone’s 15-year history, with estimated delivery dates after Christmas, WSJ said. Additionally, Apple’s fourth-quarter productions are about 10 million lower than expected, with the iPhone Pro and Pro Max being the hardest hit.

In November, the company issued a notice that iPhone backups may take place due to health restrictions in Zhengzhou.

It is now eyeing India and Vietnam to reduce its dependence on Taiwanese assemblers run by Foxconn Technology Group.

However, countries might come up with a problem for the introduction of new production as they do not have the number of production engineers and suppliers to build hundreds of millions of products like China does.

iPhone City, located in Zhengzhou, made up about 85% of the Pro lineup at one point.

But analysts told the WSJ that Apple no longer feels comfortable having the majority of its business locked in one place.

“In the past, people didn’t pay attention to concentration risks,” said former US Foxconn executive Alan Yeung. “Free trade was the norm and things were very predictable. Now we have entered a new world.

Apple hopes, in the long term, to ship up to 45% of its products from India, which is currently only making single-digit sales, according to Ming-chi Kuo, an analyst at TF International Securities.

And Vietnam could largely handle the production of AirPods, smartwatches and laptops, WSJ reported.

However, the company could still maintain a significant presence in China – which has created around 1 million local jobs, according to People’s Daily, a state-backed newspaper – using other supplies. Two companies Apple would consider would be Luxshare Precision Industry Co. and Wingtech Technology Co.

Foxconn, which runs the Zhengzhou plant, shipped $32 billion worth of products in 2019 and accounted for nearly 4% of China’s exports in 2021, according to the People’s Daily.

Even with Beijing’s tensions with Taiwan, in which the United States is politically involved, the country still looks emotionally at Apple’s presence in the country, People’s Daily reported.

However, although China has eased some of the COVID-19 restrictions due to ongoing protests, Apple’s factory is still short of many workers. Numbers are numbers, but it’s estimated there are thousands to tens of thousands of workers, according to the WSJ.

Kuo estimated it was operating at around 20% capacity, but could reach 40% this month.

Foxconn has tried to move some production to its plant in Shenzhen, which is about 1,000 miles from the main plant, but it cannot close the entire gap, according to the WSJ.

And now Foxconn is offering monetary incentives to bring workers back into the factory by offering an $1,800 bonus in January to any full-time worker who started in November or earlier. Those who wanted to quit received $1,400.

Last week, China ordered the confinement of six million people after hundreds of workers took to the streets of Zhengzhou.

Beijing’s move to crush dissent came after footage of the protests went viral and the number of coronavirus cases in China hit an all-time high – nearly three years into the pandemic and approaching zero-COVID-19 of the Chinese Communist Party.

In a rare display of public anger, workers – furious at isolation policies and COVID-19 working conditions – violently clashed with hazmat-clad staff wielding batons.

Following 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 get treated.

Daily mass testing has been ordered in what the city government has called a “war of annihilation” against the virus. The restrictions do not cover the iPhone factory, where workers have already been under COVID-10 restrictions for weeks.

Additionally, Apple faces India and Vietnam’s difficulty in managing the amount of production that China can handle, with Vietnam having only one-tenth the population that China has and can only handle a factory of 60,000 people against 300,000.

“They don’t make high-end phones in India and Vietnam,” former Foxconn executive Dan Panzica told the WSJ. “No other place can do them.”

Although India has the number of people, government coordination is not as good as China’s, leaving Apple to face very different regional government restrictions in the country.

“India is the Wild West in terms of consistent rules and getting things in and out,” Panzica said.

Panzica believes that for Apple to be successful in diversifying its business, it will need to rely on “spreading and creating more villages instead of big cities.”