Foxconn maintains ‘closed-loop’ production at Zhengzhou facility

The world’s largest iPhone factory, operated by Foxconn Technology Group in the central Chinese city of Zhengzhou, has kept up its “closed-loop” production system that restricts movement of employees since mid-October, as Apple’s prime supplier remains under pressure to meet surging demand during the holiday season.

Foxconn’s integrated Digital Product Business Group, the division responsible for iPhone assembly, described this status quo over the weekend in an open letter, which implored workers at the manufacturing complex to “have more understanding and support” for the closed-loop policy amid the company’s efforts to “successfully complete orders”.

The Taiwanese contract manufacturer, formally known as Hon Hai Precision Industry, reassured workers that infections from Covid-19’s Omicron variant at the facility “are mostly mild or asymptomatic”, adding that “there will be no after-effects”, the open letter said.

That appeal comes after most parts of Zhengzhou, the capital of central Henan province, lifted pandemic controls last week, as the central government signalled a shift in its zero-Covid-19 policy. Many Chinese cities, including Beijing and Shanghai, no longer demand regular polymerase chain reaction testing.

Foxconn’s open letter also assured that “living and working with those who recovered from Covid-19 is safe”, while suggesting that those “who get reinfected will not infect people around”.

The credited author of the open letter is an “expert team”, comprising people under Henan healthcare authority and Foxconn’s “pandemic prevention and control command” in the province.

This latest communication reflects the urgency of Foxconn’s efforts to restore full production capacity at its Zhengzhou facility, following severe disruptions including worker protests that turned violent and the exodus of tens of thousands of employees.

That concern was highlighted late last month, when Apple issued a statement about sending a team to Foxconn’s Zhengzhou plant to review the situation and work closely with the supplier “to ensure their employees’ concerns are addressed”.

Apple could ship 20 per cent fewer smartphones this holiday quarter than previously expected, according to a recent forecast by TF International Securities analyst Kuo Ming-chi.

The protests and manpower shortage at Foxconn’s Zhengzhou facility prompted Kuo to slash his forecast iPhone shipments by a fifth to between 70 million and 75 million units for the December quarter – typically Apple’s biggest – as shipments of the iPhone 14 Pro and Pro Max models are expected to fall short by 15 million to 20 million units.

Last month’s Black Friday shopping festival in the US saw many consumers have trouble finding those two high-end iPhone models online and offline because of the manufacturing disruptions in Zhengzhou.

Foxconn’s sprawling compound, known as “iPhone City”, typically has about 300,000 people working on its assembly lines at this time of the year to meet large holiday orders.

As the Zhengzhou facility struggles to meet its holiday production schedule, both Apple and Foxconn, the world’s largest electronics contract manufacturer, are keen to further diversify where iPhone assembly lines are located.

Foxconn said it has injected 1 billion yuan (US$142 million) into its facilities in Taiyuan, capital of northern Shanxi province, according to a stock exchange filing last Friday. It described that move as a “long-term investment”, without elaborating.

On the same day, the company also announced a US$58.98 million investment in a subsidiary in the Czech Republic, which followed a US$300 million investment in a new Apple plant in Vietnam in August.

While Apple has reportedly accelerated plans to shift more production outside China, such relocation will be a marathon. Vietnam’s manufacturing industry is short of workers, while “India is the Wild West in terms of consistent rules and getting stuff in and out”, former Foxconn executive Dan Panzica was quoted as saying in a report by The Wall Street Journal over the weekend.

It would be “difficult for Hon Hai to continue to be the exclusive assembler of the iPhone 15 Pro series” next year, TF International analyst Kuo has said. He indicated that Apple has already shifted 10 per cent of its iPhone 14 Pro and 14 Pro Max orders from Foxconn to rival contractors Pegatron and Luxshare-ICT, with mass shipments expected in late December at the earliest. South China Morning Post