Apple stock faces a ‘body blow’ from ‘iPhone city’ riots in China

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Hundreds of workers at the world’s largest iPhone factory in Zhengzhou, China, protested strict zero-COVID policies, poor working conditionsY mismanaged contracts on Wednesday, with analysts warning it could be a “body shot” for Apple.

Videos posted on social media showed violent confrontations between authorities and employees of Foxconn, a contract assembler that makes iPhones. The protests are an escalation of tensions that underscores growing dissent against living conditions in factories across China during COVID.

Since October 13, some 200,000 Foxconn workers have been operating under a closed-loop system, where employees work and live full-time on site to maintain production and prevent the spread of COVID.

Despite these efforts, which have angry workersApple has warned that production of the iPhone 14 Pro and other premium models will be lower than expected after major production cuts at the Zhengzhou Foxconn plant, and that was before the latest protests.

This is not the first time workers at an Apple supplier in China have resorted to protests amid tight COVID-19 restrictions and poor working conditions this year. In May, hundreds of workers at an Apple supplier called Quanta Computer clashed with guards and broke through isolation barriers after two months of COVID lockdowns and pay disputes.

Wedbush technology analyst Dan Ives said the lockdowns and protests in China this year have been a “big blow to Apple” which has reduced the number of iPhone 14 units available to sell by 5%, leaving the company with a “great shortage.” ahead of the holiday season.

And Ives fears that the situation will get even worse after the latest protests.

“If Zhengzhou remains at lower capacity in the coming weeks and continues to see unrest with workers build up, this would cause a clear major iPhone Pro shortage over the all-important Christmas period, especially in the US,” he wrote in an inquiry Wednesday. Note.

The iPhone shortage is a big concern for Apple, considering that roughly 52% of the company’s fiscal 2022 revenue came from iPhone sales alone, according to filings with the SEC.

“This latest zero-covid situation is an absolute body blow to Apple in its most important holiday quarter,” Ives wrote.

Despite protests in China, Apple shares were flat on Wednesday. The great technological giant, which was the most profitable Fortune 500 in 2021, it has been more resilient than most of its big tech peers this year, but its shares are still down about 17% year-to-date as recession fears mount.

Apple did not respond to Fortunerequest for comment on the protests or interruptions in the production of the iPhone.

Mark Haefele, chief investment officer at UBS Global Wealth Management, also warned investors on Wednesday that production disruptions due to recent protests and COVID policy uncertainty “add to operational difficulties” for companies like Apple. .

“While relatively small in scale compared to the size of the workforce, the outages come at a time of peak demand in Western markets, with Apple previously warning of lower shipments of premium phones due to earlier outages,” he wrote. Hafele in a research note on Wednesday.

And Jim Reid of Deutsche Bank also warned on Wednesday that China’s zero-COVID stance took “a new turn for the worse” this week, noting that restrictions in several provinces have been “increased” as the number of cases rises. constantly.

That means more lockdowns could be on the way, which is bad news for Apple.

China reported its first COVID death in more than six months this week as daily cases continue to rise. More than 253,000 COVID cases have been found in China in the past three weeks, government officials reported Tuesday.

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