China's largest iPhone factory locked down for a week

On Wednesday, the Chinese government locked down the world's largest iPhone enterprise. The zone surrounding the enterprise was declared closed because of a local coronavirus outbreak.

On the same day, the cost of Apple’s shares dropped by 3.7%. Partially this was caused by the last comment of FRS US Chairman Jerome Powell.

As analyst Nicole Peng said, the factory in Zhengzhou is crucial to boost production before the holidays. Part of the orders involved in the holiday campaigns can be delayed. The delivery by other channels won’t be quick either.

Currently, the factory owned by Foxconn will continue to function in a "closed loop" mode, i.e. in conditions of few contacts with the external world. It will give the possibility to save part of the production. But the representatives of the company didn’t explain how they plan to organize the goods delivery during the lockdown of the district.

Counterpoint senior analyst Ivan Lam said that Zhengzhou is a place where the most important production of Apple is situated. 80% of new generation smartphones and most iPhone 14 Pro gadgets are made here. Sales of smartphones make up about half of Apple’s income and the quarantine restrictions were implemented in the middle of the peak production season before the start of the holiday sales. 

At this time much depends on the blocking. It should last until November 9, but regional authorities can extend it for weeks and months.  

The government created so-called “green lanes” i.e. free zones for key enterprises. However, the logistic needs of the company are quite big and may cause issues. It is also necessary to find new employees so that they can replace those who left the company.

Foxconn needs to stock up the materials to keep production running for several weeks. The main issue is the shipment of products. The blocking prohibits the passage of vehicles except those involved in the transportation of medical devices.

Foxconn is the biggest employer among Chinese companies and the main taxpayer in Zhengzhou. Because of it the local authorities most likely will make concessions to the company, but it isn’t known what they will be.

Foxconn increased the salary and provided support from other enterprises to maintain the pace of production, in case the factory in Zhengzhou suspends. Apple can place orders for iPhone 14 and earlier models through other Chinese enterprises. However, there are only a few small places where the iPhone Pro can be made.