Kuo Warns of Delays and Low Labor Return Rates at Apple Supplier Factories in China Due to Coronavirus

Apple analyst Ming-Chi Kuo today sent out a note to investors warning them to pay close attention to the epidemic changes of the coronavirus outbreak in China as it is having an affect on Foxconn, Pegatron, and other Apple suppliers.

In the note, Kuo outlines the status of several major Apple suppliers as workers prepare to return to factories to resume production on Apple products.


Foxconn's Zhengzhou site, which Kuo says is the most critical production site for the iPhone 11 and the upcoming low-cost iPhone, is seeing significant delays. Foxconn originally planned to resume work on February 2, but that has been postponed by at least one week. Kuo estimates that the labor return rate will be 40 to 60 percent of what it was prior to the Lunar New Year holiday when the facility reopens.

Work at Foxconn's Shenzhen location focuses on the new 2020 iPhones, and the development team there, which accounts for 30 percent of total manpower, did not take a break during the holiday. Kuo says the plan initially filled other manpower gaps, but it has been postponed for at least a week. Labor return rates are estimated at 30 to 50 percent.

Foxconn has moved production equipment to its sites in Taiyuan and India because of the delays in China, but production capacities are limited in those locations.

A report yesterday suggested that Chinese health officials had denied Foxconn's plans to reopen its factories after conducting on-site inspections and finding fault with poor airflow and the use of central air conditioning, but Chinese authorities in a statement today said that they had not blocked Foxconn from resuming production.

According to new information from Reuters, officials in Shenzhen's Longhua district where Foxconn's largest factory is located said that the report was untrue and that it was still conducting checks. Production at Foxconn facilities will restart when inspections have been completed, and Foxconn has submitted coronavirus prevention proposals that include temperature checks, requiring employees to wearing masks, and implementing a safe dining system.

Pegatron, another Apple supplier, resumed work on ‌iPhone 11‌ production and new iPhone 12 development at its Shanghai factory on February 3, with a labor return rate of 90 percent, but Kuo believes that the labor rate will fall to 60 or 70 percent because many factory employees will resign after they get paid in February.

Pegatron's Kunshan factory in charge of production on the new low-cost ‌iPhone‌ was meant to return to work on February 10, but that has been postponed "at least several days" with an estimated labor return rate of 40 to 60 percent when it reopens.

Kuo declined to provide new shipment forecasts because "there are still many uncertainties," but last week he lowered his iPhone shipment forecast by 10 percent to 36 to 40 million units during Q1 2020 due to the coronavirus.

Depending on when Apple's supplier factories reopen, there could be a significant impact on device supplies resulting in longer shipping and wait times for new devices and potential delays for devices rumored to be to launching early in the year like the low-cost ‌iPhone‌.


This article, "Kuo Warns of Delays and Low Labor Return Rates at Apple Supplier Factories in China Due to Coronavirus" first appeared on MacRumors.com

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Pegatron to Invest up to $1 Billion in Indonesian iPhone Chip Factory

Apple supplier Pegatron plans to invest up to $1 billion in an Indonesian factory to produce chips for Apple smartphones, an Indonesian ministry official said on Tuesday (via Reuters).


The Taiwan manufacturer made the pledge in a signed letter to the Indonesian government, in which it said the chips would be produced in partnership with Indonesian electronics company PT Sat Nusapersada, according to Deputy Minister Warsito Ignatius.

Pegatron expects the investment to come somewhere between $695 million and $1 billion, although the variables influencing the exact amount remained disclosed.

In December 2018, Apple was said to be looking to shift production of older iPhones to Pegatron in an effort to avoid losing billions in revenue as a result of its patent dispute with Qualcomm. That dispute has since been resolved, however rising trade tensions between the U.S. and China has put manufacturers in both countries on alert. Pegatron has assembly plants in China, which suggests its pledge of Indonesian investment could be a contingency plan.

According to today's report, the new Indonesian factory might also be used to produce MacBook components, although that operation "would not be in the short term," Ignatius told Reuters.

A DigiTimes rumor in May 2018 tipped Pegatron to pick up orders from Apple to produce a MacBook powered by an ARM processor, although the information it was based on may have been misconstrued with the Touch Bar on Apple's MacBook Pro, which is already powered by an ARM-based T1 chip as a companion processor. Apple said in 2017 that it had no plans for Macs powered solely by ARM chips, rather than Intel processors.


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Apple Seeking to Shift iPhone Production to Pegatron to Offset Chinese Qualcomm Ban

Apple is reportedly looking to shift production of older iPhones to Taiwanese supplier Pegatron in an effort to avoid losing billions in revenue as a result of its patent dispute with Qualcomm.


Earlier this week, Qualcomm was granted an import ban on the iPhone 6s through iPhone X in China after the court found those devices violated two Qualcomm patents.

However, according to documents seen by Nikkei Asian Review, smartphones produced by Pegatron are exempt from the ban because the Taiwanese supplier paid license fees for the contested software, whereas rival iPhone assemblers Foxconn and Wistron did not.
One of the sources with direct knowledge of the situation said Apple had held initial discussions with Pegatron about whether the Taiwan-based company could take on more iPhone production to make up for the impact of the ban. No decision has yet been taken, however.

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Taking into account a consumer shift to newer models, it is estimated that the order barring production of older iPhone models by Foxconn and Wistron could hit Apple's sales by some $5 billion in 2018 or 3% of total iPhone revenue.

This could be halved to about $2.5 billion if Pegatron is exempted, two sources said. And if Apple later decides to ask Pegatron to step up production, the impact would be even less, the sources added.
Apple has warned that upholding the iPhone ban would cause "truly irreparable harm" to Apple, other companies, and consumers if it is forced to withdraw its devices from the market.

Late on Thursday, Apple said it will release a software update to iPhone users in China early next week that the company says should address the patent-related issues.


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Foxconn Expected to Assemble Bulk of 2018 iPhones

Taiwanese manufacturer Foxconn will assemble the majority of Apple's widely rumored trio of new iPhones expected to launch in 2018, according to the Taipei Times, citing research from Fubon Securities.


Foxconn, formally known as Hon Hai, will reportedly assemble all of the second-generation iPhone X, 90 percent of the so-called iPhone X Plus, and 75 percent of an all-new, lower-priced 6.1-inch iPhone.

Taiwanese manufacturer Pegatron is said to fulfill the remaining orders:
Hon Hai has been selected to assemble the bulk of the new iPhones, including all of the premium 5.8-inch OLED model and 90 percent of the 6.5-inch OLED phones, as well as 75 percent of the 6.1-inch LCD model, with the remainder given to Pegatron, the report said.
Wistron, another Taiwanese manufacturer, will not assemble any of the new 2018 iPhones, according to the report.

Fubon Securities predicts that the 6.1-inch iPhone will be priced around $799 in the United States, and use nearly all of the same materials as the iPhone 8 Plus, at an estimated cost of $275 to Apple.

Last month, respected Apple analyst Ming-Chi Kuo said all three new iPhones will be both announced and made available to order this September. In a previous research note, he indicated that Apple has resolved the manufacturing challenges that resulted in the iPhone X's delayed launch and supply shortage.

Related Roundup: 2018 iPhones

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