Kuo analysis about Apple Supplier Factories in China due to Coronavirus

Coronavirus implications

A renowned Apple analyst Ming-Chi Kuo today sent out a note to the investors, in which he warns them to pay close attention to epidemic changes of the coronavirus outbreak in China, as it would be impacting Foxconn, Pegatron, and other Apple suppliers in a straight row.

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

Foxconn’s Zhengzhou site

Kuo says that Foxconn’s Zhengzhou site is the most critical production site for the Apple’s iPhone 11 and the upcoming low-cost iPhone, is also seeing significant delays. Foxconn is originally planned to start work on February 2, but that has been postponed by at least one week. According to the Ming-Chi Kuo estimates, the labor return rate will be 40% to 60% of what it was prior to Lunar New Year holidays, when the facility re-opens.

 

Foxconn’s Shenzhen site

The work at Foxconn’s Shenzhen site mainly focuses on new 2020 iPhones and the development team there, which accounts for 30% of total manpower, did not take a break during the holiday. Kuo says that the plan initially filled other manpower gaps but it has been postponed for at least a week, as the labor return rates are estimated at 30% to 50%.

Shifting of Production Sites

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

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

Reuters Report

The 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, according to latest information of Reuters.

The production at Foxconn facilities will restart when the inspections have been completed, and Foxconn has also submitted coronavirus prevention proposals that include the temperature checks, also requiring the employees to wearing the masks, and implementing a safe dining system.

Pegatron Apple Supplier

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

The Kunshan factory of Pegatron that is 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% when it re-opens.

Under these circumstances, Kuo declined to provide new shipment forecasts because “there are still many uncertainties,” but in the last week he lowered his iPhone shipment forecast by 10% to 36 to 40 million units during Q1 2020 due to the coronavirus.