Foxconn moving iPhone production to combat coronavirus production loss, says Ming-Chi Kuo

Posted:
in iPhone edited June 2020
Apple analyst Ming-Chi Kuo sees significant uncertainty surrounding iPhone production in China because of the ongoing coronavirus, and has detailed what he is seeing so far at Apple assemblers Foxconn and Pegatron.

iPhone 11 (left) and iPhone 11 Pro (right)
iPhone 11 (left) and iPhone 11 Pro (right)


In a note seen by AppleInsider Ming-Chi Kuo believes that there is more than just issues surrounding Foxconn for Apple. Besides just Foxconn, Pegatron will have problems soon if they haven't manifested already, and the entire supply chain has been shaken by the extended holiday ordered by the Chinese government.

Kuo believes that Apple's Zhengzhou site is the most critical iPhone production site, and is responsible for the bulk of the iPhone 11 and iPhone 11 Pro assemblies. It isn't clear when the factory will open, and Kuo thinks that the labor return rate will be between 40% and 60% of what the factory will need for full production.

Furthermore, the Shenzhen facility is impacted. Kuo sees most of the "iPhone 12" development there -- but that team didn't stop working. However, labor is impacted, with the return rate only being as high as 50% and possibly as low as 30% of pre-shutdown levels.

To hopefully deal with some of these problems, Kuo asserts that some production has been moved to India and Taiwan, but "capacities are limited" at those facilities.

Pegatron has two critical, and impacted, facilities. The first, Shanghai, resumed work on February 3, with a labor return rate of about 90%. But, Kuo is expecting resignations, lowering the workforce to about 60% after pay is doled out in February.

Kuo speculates that Pegatron's Kunshan facility is in charge of "iPhone SE 2" production. The original start date for production was February 10, but that has since been postponed. The labor return rate is predicted to be between 40% and 60% of pre-holiday levels.

Working around the virus

While the ongoing growth of the coronavirus outbreak will hurt Apple's business to a currently-unknown extent, the main hit for the company will be on the production side rather than retail. Apple's main production of its products takes place in China, the main country affected by the outbreak, with steps being taken by assembly partners involved to minimize its effects.

In the case of Foxconn, it said at the end of January provisions were being made to meet its production obligations. Foxconn operates a facility in Wuhan, along with other firms in the Apple supply chain.

While originally speculating a reopening of production on February 10, the company has also contacted staff to warn them not to return to work on that date. It has also taken steps to quarantine returning workers for up to two weeks to prevent further infections.

Reports have also suggested Foxconn was being prevented from opening up its facilities by local officials following an inspection, with concerns over the high density of employees and circulated air systems cited. Local authorities have denied the reports, advising on Sunday discussions with the company are ongoing, including talks over plans to minimize the coronavirus' spread.

During the January 28 Apple financial results conference call, Apple CEO Tim Cook said the company was "gathering lots of data points and monitoring (the situation) very closely." Cook also raised the existence of "alternate sourcing and contingency plans" for factories in affected areas, and admitted factory reopening delays were factored into its guidance.

As of February 9, the World Health Organization reported there have been 37,558 confirmed cases of the coronavirus worldwide, and 813 deaths. The majority of infections are based in China, making up 37,251 of the total with 6,188 deemed to be "severe," and 812 deaths.

Comments

  • Reply 1 of 17
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Anilu_777ElCapitan
  • Reply 2 of 17
    k2kwk2kw Posts: 2,075member
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    trashman69
  • Reply 3 of 17
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    I read that plans to shift production to Vietnam hadn’t proceeded when tariffs were relaxed. Don’t know how true that is though. 
  • Reply 4 of 17
    Mike WuertheleMike Wuerthele Posts: 6,829administrator
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    Nothing changed as a result of that. Apple's India manufacturing plans and negotiations with India started in 2014.
    edited February 2020
  • Reply 5 of 17
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    Parts still come from China.
    The current situation is about to disrupt auto manufacturing globally, for example.

  • Reply 6 of 17
    wizard69wizard69 Posts: 13,377member
    Anilu_777 said:
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    I read that plans to shift production to Vietnam hadn’t proceeded when tariffs were relaxed. Don’t know how true that is though. 
    Doesn’t matter one bit, Apple needs to address its involvement in China even if Trump did nothing.   

    There are two issues.   First; from the standpoint of business it is never good to have all your eggs in one basket.  Second; Apple must address the hypocrisy of doing business in China and crying about human rights at the same time.  

    Apple needs to get out if China or admit that the government there is hostile to everything it protests to believe in.  
    ElCapitan
  • Reply 7 of 17
    wizard69wizard69 Posts: 13,377member
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    Parts still come from China.
    The current situation is about to disrupt auto manufacturing globally, for example.

    It is a rather foolish position to be in as a manufacture.  It is good to see that the blind rush to exploit cheap labor is biting these companies in the rear!!!!   Frankly it is about time management was forced to wake up.  
    ElCapitan
  • Reply 8 of 17
    wizard69 said:
    Anilu_777 said:
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    I read that plans to shift production to Vietnam hadn’t proceeded when tariffs were relaxed. Don’t know how true that is though. 
    Doesn’t matter one bit, Apple needs to address its involvement in China even if Trump did nothing.   

    There are two issues.   First; from the standpoint of business it is never good to have all your eggs in one basket.  Second; Apple must address the hypocrisy of doing business in China and crying about human rights at the same time.  

    Apple needs to get out if China or admit that the government there is hostile to everything it protests to believe in.  
    "First; from the standpoint of business it is never good to have all your eggs in one basket."

    It depends. Apple is a JIT manufacturer, which implies a LOT of concurrent processes, timed to perfection. That gives them an edge in terms of profitability. Duplicating 
    capacity, which then sits idle, would slash productivity. So no, it's not black and white.

    "Second; Apple must address the hypocrisy of doing business in China and crying about human rights at the same time."

    Highly simplistic POV. Apple promotes human rights at every opportunity within China. It has gone a long way towards opening up that society. Witness the hugely anti-establishment backlash to the 
    death of Dr. Li Wenliang, the heroic Chinese 34 year old who tried to get the warning out about novel coronavirus back on December 30th.

    Now, you may not agree with the "engage" versus "boycott" 
    philosophy, and that's fine. But you can't say it isn't an alternative with a track record of some success. Contrast that with the "my way or the highway" approach of the present administration's trade war with China, that only drew back from a huge impact on our economy when that same administration back-pedaled furiously on their demands.
    tmay
  • Reply 9 of 17
    I'm not so sure that Apple itself isn't putting on the brakes vis-a-vis workers returning to their jobs too soon. It sounds like the kind of thing Apple would do. After all, they can literally afford to take a financial hit, especially if it gains them significant goodwill. In the long run, goodwill is worth a lot!
  • Reply 10 of 17
    sflocalsflocal Posts: 6,088member
    wizard69 said:
    Anilu_777 said:
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    I read that plans to shift production to Vietnam hadn’t proceeded when tariffs were relaxed. Don’t know how true that is though. 
    Doesn’t matter one bit, Apple needs to address its involvement in China even if Trump did nothing.   

    There are two issues.   First; from the standpoint of business it is never good to have all your eggs in one basket.  Second; Apple must address the hypocrisy of doing business in China and crying about human rights at the same time.  

    Apple needs to get out if China or admit that the government there is hostile to everything it protests to believe in.  
    Apple doesn’t have to do anything.  The Chinese people do.  If it wants to continue business in China, and other human-right violators like Saudi Arabia, and it’s citizens don’t mind, go right ahead.

    We have problems in the US too and I’m sure if China turns around and accuses us of violating human rights, we’d all be giving China the middle-finger and tell it to butt-out.  It goes both ways.
    cy_starkmanjcs2305
  • Reply 11 of 17
    AppleZuluAppleZulu Posts: 1,941member
    k2kw said:
    The most important thing must be the well being of the employees and not quarterly profits.
    One more outbreak and it's game over.

    Good thing that the Tariffs that Trump threatened motivated Apple to move some production to India.
    Nothing changed as a result of that. Apple's India manufacturing plans and negotiations with India started in 2014.
    Right. This administration is fickle in its decisions regarding tariffs and trade. Short-term planning is difficult enough to maneuver around the tariff decisions. I’m pretty sure the rollout of iOS 13 was bifurcated by that mess. Doing long-term production planning around Trump’s tariff threats would be like playing pin-the-tail-on-the-donkey while tripping on acid on the teacup ride at Disneyland. 
  • Reply 12 of 17
    FatmanFatman Posts: 513member
    As much as I rant about the Chinese govt and their business practices - my thoughts and prayers go out to the citizens of China and my business associates there.
    montrosemacsmuthuk_vanalingam
  • Reply 13 of 17
    The new numbers came out for Sunday: 3,062 new cases on Sunday and 93 new deaths. The total number of deaths have exceeded those of SARS. There are 40,544 coronavirus cases worldwide as of Monday morning, from which 40,171 are in mainland China. The previous assumption that the epidemic has peaked and the numbers of those infected and dead daily will now start coming down did not pan out. Both the number of daily new cases and the number of daily deaths continues to increase. Of those hospitalized, 6,500 (give or take) are severe cases, which means very high probability of fatal outcomes. So, about 16% of those infected are severe cases, not just requiring hospitalization, but listed in severe condition in the hospitals. https://www.scmp.com/news/china/society/article/3049759/coronavirus-china-reports-97-new-fatalities-death-toll One thing is important to remember. Streets are abandoned in most Chinese cities. Majority of people are staying at home. Even with people staying away from public places, the rate of infected added daily continues to climb. So, this virus is highly contagious. Frankly, I don't see non-essential production facilities opening any time soon. Not in the next 4-6 weeks for sure. Most likely, not until late April. iPhone and other Apple gadget manufacturing is a non-essential product for China right now.
    edited February 2020
  • Reply 14 of 17
    hmmm

    i realise this is an apple website, however this is not Apple will be hit by production issues, rather all companies using china as a manufacturing or assembling hub will be hit.

    more interesting - which will be hurt more by this.. china and chinese companies, or the companies and countries that contract the chinese...

    which will endure some short term loss better.

    i think we all know
  • Reply 15 of 17
    sirozha said:
    Both the number of daily new cases and the number of daily deaths continues to increase. 
    That is not correct. The amount of new cases is going down as can be seen from the daily situation reports from the WHO : 

    https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports/

    Following graph shows it nicely : 

    https://www.worldometers.info/coronavirus/coronavirus-cases/
    (daily cases worldwide)

  • Reply 16 of 17
    GG1GG1 Posts: 483member
    sirozha said:
    Both the number of daily new cases and the number of daily deaths continues to increase. 
    That is not correct. The amount of new cases is going down as can be seen from the daily situation reports from the WHO : 

    https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports/

    Following graph shows it nicely : 

    https://www.worldometers.info/coronavirus/coronavirus-cases/
    (daily cases worldwide)

    Another good interactive site:

  • Reply 17 of 17
    jcs2305jcs2305 Posts: 1,336member
    Fatman said:
    As much as I rant about the Chinese govt and their business practices - my thoughts and prayers go out to the citizens of China and my business associates there.

    Thoughts and prayers.....  come on....  such a cliche term anymore. 


    edited February 2020
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