Apple partner faces $7.4 billion disaster as factory chaos sparks sales plunge

The tech juggernaut’s most popular products have suffered a major blow – and it has caused a multibillion-dollar fiasco.

Apple’s top manufacturing partner has suffered a crushing, multibillion-dollar blow after weeks of turmoil at a major Chinese factory led to a significant shortfall in iPhones.

Foxconn, Apple’s main subcontractor, locked down its huge factory in Zhengzhou, China in October as a result of surging Covid cases, in line with President Xi Jinping’s controversial zero-Covid policy.

Since then, the factory – which is the world’s largest producer of iPhones, and is widely known as “iPhone City” with a workforce of 200,000 – has also been hit by further mayhem after violent protests broke out over the lockdown, pay and living conditions, which saw employees clashing with security at the plant.

Footage also emerged last month showing panicked workers fleeing the factory on foot over allegedly poor conditions, while videos of the protests also went viral, leaving the international community shocked.

Workers at Foxconn’s iPhone factory clashed with riot police and people wearing hazmat suits. Picture: AFPTV/AFP Photo

The confrontations broke out after employees complained about pay and conditions at the plant. Picture: AFPTV/AFP Photo

The fiasco led Apple to issue a rare statement informing customers of a delay in accessing new products ahead of the busy Christmas sales period, with an insider claiming last week that Apple would likely be short six million iPhone Pros this year alone – although that figure could change and could skyrocket even more drastically, depending on when the situation is finally resolved.

It has been claimed the situation was costing Apple $US1 billion ($A1.5 billion) a week.

Now, it has been revealed that the unrest has seriously impacted Foxconn, with sales for November down by 11.4 per cent from a year earlier, and falling by a whopping 29 per cent from October.

Foxconn reported just $US18 billion ($A26.9 billion) in revenue last month, representing a $US7.4 billion ($A11 billion) drop compared to what the company would usually expect to rake in towards the end of the year.

In fact, it is the first time in more than a decade that the firm experienced a month-on-month drop in the crucial pre-Christmas sales month of November.

An insider claimed last week that Apple would likely be short six million iPhone Pros this year alone. Picture: Scott Olson/Getty Images North America/Getty Images via AFP

Foxconn said in a statement the fall in smart consumer electronics items, including smartphones, was the result of “a portion of shipments being impacted by the epidemic in Zhengzhou”.

“At present, the overall epidemic situation has been brought under control, with November being the most affected period,” the statement said.

“In addition to reallocating production capacity of different factories, we have also started to recruit new employees, and are gradually moving towards the direction of restoring production capacity to normal.”

‘Writing on the wall’ as Apple ditches China

Despite that assurance from Foxconn, Apple is now ramping up plans to shift production away from China, after ongoing Covid lockdowns coupled with the mayhem at iPhone City shattered the nation’s reputation as a secure manufacturing hub.

The tech juggernaut is now reportedly eyeing India and Vietnam as future major production centres.

iPhone City makes up to 85 per cent of Apple’s Pro line-up of iPhones. Picture: Justin Sullivan/Getty Images North America/AFP

“We believe by 2025/2026 if Apple moves aggressively more than 50 per cent of iPhone production could come out of India/Vietnam vs single digits today,” Dan Ives, an analyst at Wedbush Securities, said in a tweet this week.

“For [Apple], the writing is on the wall in China and the head-scratching China zero-Covid policy is a black cloud over iPhone production.”

However, he added that the transition would come with challenges of its own.

“The shift out of China will not be easy and come[s] with clear logistical, engineering, and infrastructure hurdles as the aggressive move to India and Vietnam now begins with the Apple ecosystem alerted,” he said.