Internal Report: Unrest in China’s “iPhone City” will cause 6 million lost iPhones

Apple Could Lose Six Million iPhones
Taipei Times
Tuesday, November 29, 2022, page 12

FACTORY TUMULT: Departure of new workers will negatively affect production much less than official governmental quarantines imposed on existing employees, said a worker at China’s ‘iPhone city.’

Turmoil at Apple Inc’s key manufacturing hub in Zhengzhou is likely to result in a production shortfall of almost 6 million iPhone Pro units this year, said a person familiar with assembly operations.

iPhone 14 Pro Max

The situation at the plant remains fluid and an estimate of lost production could change, said a person who requested anonymity to discuss private information.

Much depends on how quickly Hon Hai Precision Industry Co (鴻海精密), the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against COVID-19 restrictions. If lockdowns continue in the weeks ahead, production could be further reduced.

The Zhengzhou campus has been wracked by lockdowns and worker unrest for weeks after COVID-19 infections left Hon Hai, also known as Foxconn Technology Group (富士康科技集團), and the local government struggling to contain the outbreak.

Thousands of staff fled last month after

iPhone 14, Domestic Manufacture, Free Trade, International Diplomacy & National Security

Apple charges between US$799 for a basic iPhone 14, to US$1599 for a top-of-the-line iPhone 14 Pro Max model.

That’s how much you’ll pay without carrier subsidies, which are typically tied to a service contract, but…

How much does Apple pay for it?

How much does it cost them to make it?

Japanese business newspaper Nihon Keizai Shimbun, and Fomalhaut Techno Solutions, a Tokyo-based mobile communications equipment analysis firm, collaborated to investigate and issued a report of their findings which were based upon disassembly of three models of the iPhone 14 series, and an estimated cost analysis of the hardware components.

Nihon Keizai Shimbun (Nihon sometimes also spelled Nippon), translated as “Japanese Economic Newspaper,” is Japan’s most widely respected daily business-oriented newspaper, with a total morning and evening circulation of 3.7 million.

iPhone 14 Pro Max

The report found that the total parts cost of Apple’s iPhone 14 Pro Max, their top-of-the-line model, costs about 20% more than last year’s iPhone 13. The iPhone 14 Pro series has few new features, and is powered by Apple’s A16 processor, which continues the company’s strategy of producing ultra-high performance products, yet prices in the US and elsewhere remain the same, thus ostensibly constricting, or compressing, profitability.

Since its 2018 introduction, iPhone’s flagship “Max” model has cost an extra US$400 to US$450.

Based upon their analysis, Fomalhaut estimated that the total parts price for the iPhone 14 Pro Max is approximately US$501, which is slightly US$60 more than last year’s iPhone 13 Pro Max model.

The cost increase in the iPhone 14 Pro series is primarily because of Apple’s “A16 Bionic” chip, which uses a state-of-the-art 4nm (nanometer) production process, currently only available from Taiwan Semiconductor Manufacturing Company Limited (TSMC), and Samsung Electronics.

Moves Protect Intellectual Property

Headquartered in Taiwan, TSMC is the world’s largest contract chip maker, a major Apple supplier, and is constructing a US$12 billion plant in Arizona near Phoenix. Governor Doug Ducey had initially visited Taiwan in 2017, and again in August 2020 for a 3-day trip, at which time TSMC announced their intention to build a $12B chip foundry in Arizona that year, and shortly thereafter began seeking subsidies. At the time of the announcement, TSMC speculated that construction would begin in 2024.

However, in August 2022, Governor Ducey made a brief construction progress report about TSMC’s Arizona facility, and recollecting his previously visits, stated in part that, “Just over two years later TSMC has completed construction for its main facility and continues to make excellent progress. Along with TSMC’s historic investment, roughly two dozen Taiwanese-based suppliers are finding Arizona is right for investment.”

TSMC broke ground on the project March 2021 and had a ceremonial “topping” celebration, a construction industry term meaning installation of the last beam, with 4000 attendees in July 2022. The property literally went from 1100 acres of tumbleweeds to factory shells in under six months.

But not only is the construction of TSMC’s Arizona facility a win-win for the United States, it also represents a prospective national security matter, because there have been rumblings that the Communist Chinese government could seize the Taiwanese facility.

Speaking in May 2022 at the Chongyang Institute for Financial Studies at Renmin University of China in Beijing, Chen Wenling, Chief Economist at the Communist Chinese government-run China Center for International Economic Exchanges told attendees that, “If the US and the West impose destructive sanctions on China like sanctions against Russia, we must recover Taiwan.”

Her remarks were alarming, and appeared to encourage Chinese military assault, and she warned the attendees that

Tim Cook & Apple Computer MUTE On Human Rights Abuses In Factories

In what is rapidly becoming an International Public Relations, Marketing and Sales nightmare for Apple Computer — the world’s largest and wealthiest corporation, with a market capitalization value of at least US$2.356 Trillion — Chinese citizens in Zhengzhou, China, known colloquially as “iPhone City” for its massive manufacturing facilities owned by Foxconn, which are contracted with Apple Computer, of Cupertino, California, to manufacture the iPhone 14, and other Apple-branded consumer computer hardware — have gone on strike after having been brutally beaten by Communist Chinese police over a reneged promise made to prospective and new employees by Foxconn for their pay.

The iPhone 14, Apple’s latest and greatest model, which retails from US$799 to $1,599.00 for a top-of-the-line iPhone 14 Pro Max model, is now “behind the power curve” on holiday sales leading up to, and immediately after “Black Friday,” when many American customers nationwide reported an inability to find the product in stores, or online. The phrase is an aviation-related one, which colloquially means to be in a situation in which circumstances are beyond a locus of control, and any extra effort to play “catch up” only gets worse with each successive attempt.

“Black Friday,” of course, refers to the day immediately after Thanksgiving (which always occurs on a Thursday) in which retailers experience their greatest sales, which for many, if not the exceeding majority, accounts for a significant portion of their annual profitability, and places them “in the black,” rather than being in an indebted, or profitless condition, which is referred to as being “in the red.”

Tim Cook, Apple CEO, official portrait

The events in China’s “iPhone City” couldn’t have come at a worse time for Apple.

Matters are further complicated by the Communist Chinese government’s mandatory “shutdowns” of all public business operations, and public intercourse.

Again, ALL of this is completely outside Apple Computer’s locus of control. Yet, there are some thing that Tim Cook could do to minimize, or ameliorate, any damages, now, and in the future.

Naturally, the problem is not limited exclusively to Apple Computer, and rather, is the initialization of an avalanche-like, cascading chain of events which will reduce Apple’s profitability, as well as that of retailers nationwide.

Beyond that, it further reemphasizes what has been continually been an increasing point of contention in the United States, which is the “outsourcing’ of American manufacturing jobs —  the most notable of which is China — to nations where there are little-to-no labor laws, practically non-existent workplace safety laws or regulations, and certainly no wage standards, and neither minimum wage laws, nor collective-bargaining labor unions to represent the employees’ interests.

In short, it is the moral equivalent of — and for all practical purposes is — slave labor, because the employees in  factories in China, overseas, and in other developing nations, have no rights, nor opportunity for redress of grievances against their employer as in the United States. It is capitalism run amok. And the worst part of it all, is that it originates from within the United States.

We are now living in an era and age in which