Foxconn's largest iPhone factory back under COVID lockdown

Bad news for Apple maybe; bad news for China's tech sector definitely

Foxconn's Zhengzhou campus, the Chinese company's largest iPhone production facility, has admitted it's facing another COVID-19 outbreak, but made assurances it has had minimal impact on operations.

Responding to previous reports the company banned cafeteria dining, began paying employees to stay off public transportation, and began requiring workers to move along certain permitted routes through facilities, Foxconn finally confirmed the restrictions today.

In a statement to the South China Morning Post, Foxconn said a small number at the 300,000-person facility had been affected by the outbreak, and that the company was taking steps to comply with pandemic policies. "At present, the epidemic prevention work in Zhengzhou is progressing steadily, and the impact on the group is controllable."

Restrictions at the Foxconn facility aren't entirely surprising given that parts of Zhengzhou were locked down last week to prevent the spread of COVID-19 in the city. According to the SCMP, Zhengzhou's COVID numbers reported Wednesday indicate 23 new cases among the city's 10 million residents.

China's zero-COVID policy places strict limits on travel and movement in regions where even the smallest COVID-19 outbreaks have occurred. For all the supply chain issues that rule has caused around the world, it appears to have had a far worse effect on China's economy.

Apple has been affected by COVID-19 outbreaks in China and the country's strict no-COVID policies before. Aside from early in the pandemic, Apple experienced production delays earlier this year in China's tech hub of Shenzhen, and again in two factories in Kunshan, west of Shanghai, a month later.

Earlier this year it was assumed that lockdowns and the general state of economic uncertainty would lead to a repeat of earlier in the pandemic, when the iPhone 12 was delayed due to supply chain issues caused by outbreaks of the virus.

Apple's second quarter numbers, which cover April when two of its factories went into lockdown, looked to be unaffected, with shipments of 9.9 million phones reported from China in Q2. CNBC said that's a 25 percent increase from the previous year; unsurprising given that earlier, larger lockdowns had a more direct impact.

Fast forward another quarter and there's a different problem: device sales are generally down due to economic uncertainty, and forecasts don't project an improvement for at least six months.

Rather than worrying it won't have enough units, Apple has slowed production of the iPhone 14 in response to flagging demand.

To make matters worse for China and Foxconn, those strict lockdowns could be behind Apple's push to move more iPhone production to India. JP Morgan analysts predicted in September that Apple could move as much as 25 percent of its hardware production out of China by 2025. Currently, around 5 percent of Apple devices are manufactured outside of China, with factories already located in India.

Add to that news of further US trade restrictions on high-tech equipment that recently caused Apple to abandon plans for a new contract with Chinese chip manufacturer YMTC, and it's bad news all around for China's tech industry. Hopefully for its sake, Foxconn's latest lockdown doesn't further sour the taste in Tim Cook's mouth. ®