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Apple Is Looking to Move Production Out of China, Report Says


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Apple
has hastened plans to move part of its production out of China, home to the world’s largest iPhone factory, according to a The Wall Street Journal report citing anonymous sources.

The world’s most valuable company is telling suppliers to plan more actively for assembling
Apple
 (ticker: AAPL) products elsewhere in Asia, especially India and Vietnam, in an effort to lower its dependence on Taiwanese assemblers led by Foxconn (2354: Taiwan), the Journal reported.
Foxconn
produces 70% of global iPhone shipments and is one of the world’s largest electronics contractors. Apple didn’t reply to Barron’s requests for comment.

In recent weeks, Foxconn’s site in the city of Zhengzhou, China, has been roiled by workers protesting overdue pay and tough Covid-19 restrictions, forcing the company to apologize on Nov. 24. Foxconn, also known as Hon Hai Precision Industry Co., announced in November that it is now offering bonuses of as much as $1,800 to workers at its Zhengzhou facility. Foxconn will top up wages by as much as 13,000 yuan a month in December and January for full-time workers who joined at the beginning of November or earlier, the company said.

Zhengzhou lifted a five-day period of Covid lockdown restrictions on Wednesday. But the damage to iPhone production, ahead of the key holiday period, may have already been done. Protests at the Foxconn plant, as well as Covid-19 measures, prompted analysts to predict severe shortages of iPhone 14 Pro models. Apple launched the iPhone 14 Pro and Pro Max models in September, and they are now the hottest sellers in its new range.

Wedbush analysts see a 10% hit to production, while TFI Asset Management’s Ming-Chi Kuo thinks shipments will be about 20%—or 15 million to 20 million units—lower than expected.

However, they differ on the extent of the impact for Apple. Wedbush analysts, led by Dan Ives, expect roughly 10 million to 15 million iPhone shipments will be pushed out in the March quarter instead “as supply starts to ramp back up.” That assumes no further protests or shutdowns. Estimating a demand to supply ratio of 3:1, he said Apple stores, retailers and online channels are “looking empty handed” for most Pro models until early January. But Kuo, pointing to a recession, doesn’t think the demand will be deferred.

Shares of Apple fell 2.6% on Monday after Bloomberg reported the company could see a production shortfall of nearly six million iPhone Pro models because of the unrest. The company’s shares have been under pressure recently thanks to problems at its factories in China, less demand for its new iPhone 14 than expected, and investors’ distaste for Big Tech. So far this year, Apple shares are down about 17%.

Write to Lauren Foster at lauren.foster@barrons.com

Credit: marketwatch.com

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