Connect with us

International Circuit

Foxconn’s disruptions in Zhengzhou may prompt more production outside China

Apple supplier Foxconn Technology Group’s latest Covid-19-related disruptions at its compound in the central city of Zhengzhou, where the world’s largest iPhone factory is located, signals the increased demand for major manufacturers to diversify their supply chain outside China, according to analysts.

The recent exodus of thousands of workers from Foxconn’s Covid-19-hit Zhengzhou compound marks the latest disruption in Apple’s contract manufacturing network on the mainland, following extended community lockdowns in the first half of this year and the threat of power restrictions across the country last year.

Apple, however, is not expected to let the production schedule for its products – including the iPhone, iPad, MacBook, iMac and AirPods – slip during the all-important Christmas shopping season across its large markets in North America, Europe and the Asia-Pacific, according to Faisal Kawoosa, founder and chief analyst at consultancy Techarc.

“Other Asian countries will offer immediate hedging for Apple [and its various suppliers] to meet the expected demand [in those markets],” Kawoosa said.

Apple’s iPhone exports from India, for example, are already expected to reach US$2.5 billion in the 12 months through March 2023, according to a Bloomberg report in October that cited people familiar with the matter. This would show that the South Asian nation is advancing to become a major location for electronics manufacturing.

Foxconn, formally known as Hon Hai Precision Industry, had earlier added extra iPhone production capacity to an existing factory in India as part of its push to diversify its supply chain beyond China, according to a report in August by Indian daily newspaper The Economic Times, which cited unnamed sources.

The increased pace of diversifying iPhone production outside China is expected to bolster Apple’s operational facility and market coverage, according to Toby Zhu, an analyst with market research firm Canalys. India, for example, is the world’s second-largest market for smartphones after China.

Foxconn’s three rival electronics contract manufacturers, which are also Apple suppliers, have already started shifting production capacity to Vietnam from China. These include Luxshare Precision Industry and GoerTek, which make AirPods, and BYD Electronics, which is set to produce iPads.

That growing shift in production outside China reflects how other countries – particularly Vietnam and India – are focused on taking a bigger share of Apple’s manufacturing supply chain.

But moving out of China, where Apple has built a deep supply chain for close to two decades, will not be easy. It would take about eight years to move just 10 per cent of Apple’s production capacity out of China, where roughly 98 per cent of the company’s iPhones are being made, according to a Bloomberg Intelligence estimate.

At present, Chinese manufacturing continues to dominate Apple’s supply chain, according to Upasana Joshi, research manager of client devices at research firm IDC India. Joshi said a wholesale shift of iPhone production from China to other countries in Asia “doesn’t look like a viable solution” right now for Apple and its various suppliers.

Still, a gradual transition is being made. The latest publicly released Apple supplier list showed that the US tech giant added six new Chinese contractors, while cutting seven previous suppliers on the mainland during its past financial year to September.

Mainland China accounted for 91 of Apple’s top 190 disclosed suppliers, according to the US tech giant’s supplier list for its financial year ended September 25, 2021. There were 13 factories in India that form part of Apple’s supply chain, while Vietnam had 26 factories.

Foxconn, meanwhile, has moved to boost daily cash incentives for its iPhone assembly line personnel in Zhengzhou, where the firm employs nearly 300,000 workers, following the exodus over the weekend. Neither Foxconn nor the Zhengzhou government has disclosed the number of workers who have left the compound or have been put in quarantine. South China Morning Post

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2023 Communications Today

error: Content is protected !!