Foxconn Factory Updat
As we have noted previously, Foxconn’s (2354.TT) Zhengzhou factory, a primary source of assembly for Apple’s (AAPL) current iPhone 14 line, has faced both COVID lockdown issues and worker unrest, severely reducing output. Foxconn released November results today, along with some statements concerning the factory status and expectations. The November results (company-wide) were NT$551,092, ($18.053b US), down 29.0% m/m and down 11.4% y/y, against a typical (3 year average) November being up 8.4%. This comes after the previous two months being up 41.0% and 40.4% y/y respectively, and while the company indicated that these results were “roughly in-line with company expectations”, we expect those expectations have been changing almost daily. Also noted was that production was ‘gradually entering the off-peak seasonality”, with ‘Smart Consumer Electronics Products’ impacted by the Zhengzhou issues.
Foxconn’s outlook for 4Q included the statement “At present, the overall epidemic situation has been brought under control with November being the most affected period by the epidemic. In addition to reallocating production capacity of different factories, we have also started to recruit new employees, and are gradually moving toward the direction of restoring production capacity to normal. The outlook for the fourth quarter is expected to be roughly in line with market consensus.” That said, the Zhengzhou plant still requires additional staffing, and after the disruptions by workers over recruitment promises made by the company during the recent lockdown, that might take some time. Unofficial statements by management indicated that ‘if the recruitment goes smoothly…” the plants could resume full production in late December or early January, but those ‘ifs” remain and workers could be hesitant to believe Foxconn’s enticement promises.
While Foxconn, and the Zhengzhou site represent the majority of iPhone assembly share, the plants also assembles networking and computing products, so there is at least an offset to the smartphone shortfall at Foxconn itself, however the impact on Apple remains, and our 11.4m unit shortfall is now becoming the middle of shortfall estimates. While we keep to our estimate, even with the easing of Chinese government COVID policy, it will take quite a bit of assembly supply chain machinations to make up much of that shortfall before year-end.
Foxconn’s outlook for 4Q included the statement “At present, the overall epidemic situation has been brought under control with November being the most affected period by the epidemic. In addition to reallocating production capacity of different factories, we have also started to recruit new employees, and are gradually moving toward the direction of restoring production capacity to normal. The outlook for the fourth quarter is expected to be roughly in line with market consensus.” That said, the Zhengzhou plant still requires additional staffing, and after the disruptions by workers over recruitment promises made by the company during the recent lockdown, that might take some time. Unofficial statements by management indicated that ‘if the recruitment goes smoothly…” the plants could resume full production in late December or early January, but those ‘ifs” remain and workers could be hesitant to believe Foxconn’s enticement promises.
While Foxconn, and the Zhengzhou site represent the majority of iPhone assembly share, the plants also assembles networking and computing products, so there is at least an offset to the smartphone shortfall at Foxconn itself, however the impact on Apple remains, and our 11.4m unit shortfall is now becoming the middle of shortfall estimates. While we keep to our estimate, even with the easing of Chinese government COVID policy, it will take quite a bit of assembly supply chain machinations to make up much of that shortfall before year-end.
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