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Apple’s (NASDAQ:AAPL) biggest supplier Foxconn (TW:2317) could reduce iPhone output by at least 30% at its key factory in China as worker unrest continues, according to Reuters.
A source familiar with the situation at Foxconn told Reuters that it is “impossible” for the electronics contract manufacturer to resume full production by the end of the month. As a result, Foxconn has been forced to make an upward revision of its internal forecast for production impact.
The report came after Apple said it is working with Foxconn to resolve worker issues at the world’s largest iPhone factory in China as pressure on the Cupertino-based titan increases to push Foxconn to improve working conditions. Apple said it has staff on the ground to help Foxconn ensure their employees’ concerns are addressed, according to the Wall Street Journal.
It was widely reported on Tuesday that workers at Foxconn’s Zhengzhou plant clashed with the security and police, accusing the company of late payments and poor working conditions at the plant.
The WSJ reported that Foxconn offered a 10,000-yuan payment (about $1,400), to newly recruited workers who wanted to leave their jobs and return home. Many workers responded positively and waited in long lines with their luggage to leave the factory, according to the report.
A closely-followed Apple analyst from TF International Securities projects that Apple could see a roughly 10% impact on global iPhone production capacity due to the latest issues at Foxconn.
The supply chain issues come at a critical time for Apple as the company faces strong demand for high-end iPhone models heading into the Black Friday weekend and holiday season. Wedbush analysts forecast that Apple may sell 2 million fewer iPhone 14 units for Black Friday.
Similarly, Evercore ISI analysts believe Apple could lose about $6 billion in FQ1 revenue given that the Zhengzhou plant has been experiencing production issues for the third consecutive week.
Still, they remain positive on the Apple stock as they say iPhone demand remains robust.
“Although Foxconn continues to struggle to resume normal operations, lead times for the more in-demand high-end models have stabilized. Given the consistently strong demand for the iPhone 14 Pro/Pro Max and the stickiness of the AAPL eco-system, we continue to view this as revenue deferred vs. lost. Higher sales of the Pro models will likely have a notably positive effect on both mix/margins,” the analysts said in a client note.
