Apple may run out of iPhones due to factory disruptions in China

The company said Covid-19 restrictions were slowing production of its new phones ahead of the holiday season.

Weeks after expressing optimism about the global economy and its business, Apple warned on Sunday that sales would fall below expectations as a key iPhone factory in China was shut down by a coronavirus outbreak.

The sharp change in its business outlook is the latest reminder of the risks to the company's concentrated manufacturing supply chain in China. Once a task force that gave Apple the flexibility to have legions of employees launch iPhones to meet global demand, its reliance on China has become a liability as the country's commitment to a policy zero Covid-19 led it to lock down cities, businesses and factories.

In mid-October, the largest iPhone maker Apple, Foxconn, closed the main factory in Zhengzhou as coronavirus cases increased. Foxconn closed the facility to the outside world and locked about 200,000 workers inside its grounds. iPhone production continued at "significantly reduced capacity," Apple said in a statement Sunday. The company added that its production issues will mean customers will face longer wait times between purchase and delivery of its high-end iPhone 14 Pro and 14 Pro Max.

“We are working closely with our supplier to return to normal production levels while ensuring the health and safety of every worker,” Apple said in its statement.

< p class="css-at9mc1 evys1bk0">The shutdown is the second to affect Apple this year. It lost about $4 billion in iPad and Mac sales in the spring and summer after factories outside Shanghai were closed to limit the spread of Covid-19.

Apple's setback comes amid a larger downturn in the outlook for the tech industry. Shares of Alphabet, Amazon and Meta have fallen this year amid an economic downturn that has dented e-commerce and advertising sales. Apple's stock price fell but avoided the sharp declines of its peers largely because it continued to deliver strong trading results.

L China's zero-tolerance approach to Covid-19 promoted by China's top leader, Xi Jinping. The country's leaders remained committed to this policy following Mr. Xi's election to a third term.

Apple's presence in China is so important that locals refer to Zhengzhou as "iPhone City". At full capacity, the Foxconn factory was capable of producing 500,000 iPhones a day. This is the largest iPhone factory, accounting for more than half of Apple's annual sales.

"That's what Apple feared “, said Wayne Lam, a technology analyst at CCS Insight. "China is not letting go of this zero Covid policy, and this is going to have a big impact because these high-end phones were the last area of ​​the smartphone market that was in demand."

After Foxconn shut down its factory in Zhengzhou, some factory workers fled the factory and started walking back to their homes across the countryside. Images and videos of their leak have spread on social media. Leo Lin, a 29-year-old factory worker who spoke to The New York Times last week, said many workers panicked as quarantine facilities began to overflow.

Foxconn responded by offering workers an extra $14 a day to keep working. It then increased those payments to $55 a day.

Apple began to diversify its supply chain away from China, shifting production of some iPhones to China. 'India and other products to Vietnam. But the company still relies on China to produce more than 90% of the iPhones it sells, analysts said. ...