The operation of Foxconn’s major manufacturing base in the Chinese city of Zhengzhou has been affected by a local COVID-19 outbreak since this October. As a result, the capacity utilization rate of the base has yet to risen above the level of 70%. The outbreak in Zhengzhou was at its worst just as Apple was trying to ramp up sales of the new iPhone models for this year (i.e., the iPhone 14 series) to a peak. Furthermore, the new Pro models have been in high demand, so Apple has kept raising their share in the overall iPhone production. Hence, Foxconn as the sole assembler of the new Pro models has been under significant strain. Besides the Zhengzhou base, Foxconn is also drawing support from its other major base located in the Chinese city of Shenzhen. However, this move still not enough to bring an immediate relief to the current capacity crunch. Given this situation, TrendForce has corrected down its projection on the total shipments of all iPhone 14 models in 2022 to 78.1 million units.

Foxconn Is No Longer Sole Assembler for iPhone Pro Models as Apple Has Tapped Luxshare for Production of iPhone 15 Pro Max

For years, Apple has outsourced the assembly of iPhone Pro models exclusively to Foxconn. However, due to the imperative of risk management, getting a second EMS provider for this task has been under consideration for some time as well. Apple is reportedly to have made the plan of using another EMS provider besides Foxconn for the assembly of the iPhone 14 Pro models in near future. This will serve as a trial run for diversifying its partners and locations for iPhone production. Moreover, due to the recent outbreak at Zhengzhou, Apple has also made decision of employing Luxshare as one of the assemblers for the upcoming iPhone 15 Pro Max. However, Luxshare’s only iPhone assembly plant is located in China. In Vietnam, Luxshare has a plant for assembling Apple-related accessories, but the company currently has no plan for setting up a new iPhone production line there.

Efforts Are Taking Place in Supply Chain to Rapidly Raise Portion of Device Production Based in India and Vietnam

Because of the growing concern about geopolitical tensions, Apple intends to significantly expand the number overseas production sites that are outside China. For 2023, Apple aims to double its device production capacity in India and have factories in Vietnam start making contributions by the middle of the year. In view of the escalating trade dispute between China and the US, Apple will be compelled to rely only on production sites outside China to meet the sales demand of the North American market. In order to realize this, TrendForce believes that at least 30~35% of Apple’s entire device production capacity will have to be located in Vietnam and India. Therefore, Apple will need to keep raising the share of device production based in these two countries over the next several years.

China Is Experiencing Labor Shortage After Loosening Pandemic-Related Restrictions, so iPhone Shipments Are Forecasted to Drop by More Than 20% YoY for 1Q23

TrendForce further points out that China’s supply chain has started to experience a labor shortage this December. This has to do with the Chinese government making a significant change to its policy for addressing COVID-19 outbreaks and the general preparation for the impending Lunar New Year holiday. There are also signs that the labor shortage could get worse. Hence, on top of the various headwinds that are affecting the global economy, Apple is again facing a lack of manpower that constrains its device production. TrendForce has corrected down its forecast of iPhone shipments (including all existing models) in 1Q23 to 47 million units, with the corresponding YoY decline coming to 22%.