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iPhone Assembler Foxconn Moves to Limit Plant Disruption as Shares Slide

(Bloomberg) -- Foxconn Technology Group’s main listed arm fell the most in three weeks, after the world’s largest maker of iPhones said it may boost capacity at alternative sites to mitigate potential disruption at its main Covid-stricken plant in China.

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Foxconn, whose listed vehicle is Hon Hai Precision Industry Co., is grappling with mounting concern that a Covid flare-up at its main Zhengzhou plant could hurt production just as Apple Inc. gears up for the holiday season. The Taiwanese company also makes iPhones at a factory in Shenzhen, which together with Zhengzhou cranks out the majority of the world’s iPhones. Its shares fell as much as 2.4% Monday in Taipei.

Social media erupted over the weekend with photos and videos of workers departing the Zhengzhou plant, some on foot, to return to hometowns miles away. They were seeking to escape hastily enacted Covid-prevention measures that have left many of the 200,000 staff grappling with inadequate living conditions. Other videos depicted local residents offering food and shelter to some of the departing staff.

Bloomberg hasn’t verified the authenticity of the content. But the rising tensions underscore the economic and social costs of Xi Jinping’s Covid Zero policy -- a rigorously policed system of mass testing and lockdowns that has fostered growing resentment. It also shows the potential risk to global supply chains and products from China’s approach.

“Further developments will be important as 4Q is the peak season for iPhone shipments,” Morgan Stanley analysts wrote. “The potential impact on iPhone production is worth monitoring as Zhengzhou is one of Hon Hai’s major production sites, particularly for iPhone assembly.”

Read more: Workers Leave Biggest IPhone Plant to Escape Covid Curbs

It’s unclear how many workers were allowed to leave Foxconn. The company hires many temporary staff from nearby regions to assemble electronics including Apple’s latest iPhone 14 devices. Foxconn last week described the situation as a “small” outbreak.

“We are deeply aware that it’s a ‘protracted war’ in terms of how to take care of over 200,000 workers and their security” in Zhengzhou, Foxconn said in a Monday stock exchange filing.

Discontent has been brewing among staff at Foxconn’s main factory in Zhengzhou, where the emergence of Covid cases saw it go into a closed loop system. Food became a source of unrest after the company shut cafeterias at the manufacturing site known as “iPhone City.”

At one point, only workers on production lines were given meal boxes, with those infected or afraid to leave their company-provided dormitories given more basic fare like bread and instant noodles, Bloomberg News reported. On Monday, Foxconn said the local government had agreed to let it re-open cafeterias on campus.

The “Zhengzhou park operation, in coordination with the government’s epidemic prevention, is gradually coming under control,” Foxconn said in a brief statement Sunday. “The Group will also coordinate back-up production capacity with our other parks to reduce any potential impact.”

The discontent comes at a crucial time for Apple, which launched the iPhone 14 during an unprecedented slump in global electronics demand. While faring better than other smartphone makers, it’s backed off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, Bloomberg has reported. Apple reported better-than-expected results Thursday but warned of a holiday slowdown.

Any disruption at Zhengzhou threatens to snarl Apple’s finely orchestrated supply chain. Thousands of components from Europe to Asia are shipped into Zhengzhou, assembled manually into devices, then shuttled off to the rest of the world.

--With assistance from Ville Heiskanen.

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