'Apple Supplier' Foxconn Factory in China Partially Resumes... iPhone Production May Be Stalled

[Asia Economy Reporter Seulgina Jo] Apple's supply chain in China, which came to a halt earlier this month due to the impact of the novel coronavirus infection (Wuhan pneumonia), remains uncertain. Foxconn's factories in China, the contract manufacturer, have only seen a partial return of workers despite the authorities' decision to resume production, and the closure period of major Apple stores is also being extended.

On the 10th (local time), economic media CNBC reported that the ripple effects of the novel coronavirus outbreak continue this week, making iPhone production in China uncertain.

Foxconn, one of Apple's suppliers, has resumed production at its Zhengzhou factory, but so far only 10% of the total workforce (16,000 employees) has returned. The request to resume operations at the Shenzhen factory has not been approved, and the factory in Shenzhen has only partially resumed operations from the 11th. Even the Shenzhen factory preparing to resume has only seen about 10% of its workforce return.

Ming-Chi Kuo, an Apple expert and analyst at TF International Securities, pointed out in an investor note that "(Foxconn's) Zhengzhou factory has become the most vulnerable production base for the iPhone 11 series and the upcoming affordable iPhone to be released in March."

In Zhengzhou city, it is expected that factories in the region will be able to resume production around the 24th. However, analyst Ming-Chi Kuo predicted that even if factory operations resume, the return rate of workers will be only 40-60% due to concerns over the spread of the novel coronavirus among employees. This is expected to lead to a 10% decrease in iPhone shipments in the first quarter.

Moreover, the industry is concerned that it will take 1 to 2 weeks to normalize production after resumption. Major foreign media pointed out that Foxconn's Zhengzhou and Shenzhen factories mainly manufacture iPhones, making it inevitable that the global iPhone launch will be adversely affected. On the same day, market research firm TrendForce estimated the first-quarter iPhone production forecast at 41 million units, 10% lower than previously expected.

Foxconn stated in a press release that "the welfare of employees is the highest priority," but did not disclose a clear position regarding the timing of production normalization. Apple's stock on the New York Stock Exchange fell about 1% in the morning but slightly recovered in the afternoon.

The closure period of Apple stores and offices in China has also been extended beyond initial expectations. Previously, Apple stores were expected to remain closed until the 9th. On the 7th, Apple stated, "In consultation with health experts and authorities, we are preparing to reopen corporate offices and stores during the week of February 10."