Foxconn: Supply chain issues as smartphone exports decline

Beijing: Coronavirus-related manufacturing disruptions in China have raised concerns over shifting supply chains amid an already dismal export outlook, highlighted by a sharp decline in smartphone exports from a key industrial sector in October.

Chinese customs data shows that 8.4 million smartphones were assembled and exported in October, down 16.9% from 10.2 million in the previous month. Henan province, which is home to Foxconn's massive iPhone factory in the capital city of Zhengzhou, is where it happened.

Analysts said the decline is especially so given the rapid trend of manufacturers diversifying from China to countries such as India and Vietnam, even as Apple released the new iPhone 14 series in mid-September.

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Foxconn best represents China, according to Zhang Zhiwei, chief economist at Pinpoint Asset Management.

The number of shipments from Hainan declined by more than 1 million, or about a fifth month over month, to 4.37 million as a result of orders from the United States, according to customs data.

This resulted in a shortfall of over US$609 million in export value. Henan's exports totaled US$67.15 billion in the first ten months of the year, with about 60 million assembled smartphones accounting for half of that amount and more than half going to the US.

China has already acknowledged that its overall export growth contracted 0.3% in October from a year earlier, down from a 5.7% expansion in September, and entered negative territory for the first time in more than two years.

The Foxconn Technology Group plant in Zhengzhou, which could employ 350,000 people at its peak, is an important economic engine for the region and a prime example of China's export-oriented manufacturing sector, according to analysts.

According to the Statistical Society for Foreign Economic Relations and Trade of China, the largest exporter of all Chinese businesses in 2019 was Foxconn's Zhengzhou branch, officially known as Hong Fu Jin Precision Electronics (Zhengzhou).

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Zhang said what policymakers can do to mitigate additional downside risks to exports is a major concern for next year as external demand continues to decline.

Since thousands of workers left the factory in late October due to the coronavirus outbreak, production at the facility has been disrupted, putting additional pressure on local governments that are already allowing industrial operations under Beijing's zero-Covid policy. Struggling to keep normal.

"[Problems like this] aren't going to be resolved any time soon," according to Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.

As a result, the decline in exports will not stop and these businesses will have to find new markets. Nothing happens quickly, but it would happen faster than if China didn't have a zero-covid policy.
Therefore, countries such as India and Vietnam will receive significant investment.

Dan Wang, chief economist at Hang Seng Bank (China), predicted that since the Foxconn plant also serves as Henan's largest taxpayer, the local government will experience increased financial stress as a result of the disruptions.

While the direct impact on China's economy may be negligible, Wang said that other suppliers in Apple's supply chain, particularly those in the upstream or service providers, would suffer as a result of Foxconn's downturn as it would affect their liquidity.

According to Wang, manufacturing disruptions will get worse during the reopening process before getting better.

Despite supply chain disruptions, Beijing has vowed to stick to its zero-Covid strategy, although it announced a slight easing of strict guidelines earlier this month.

Although infections hit a record high of 31,444 on Thursday, local governments have continued with strict control measures, including widespread lockdowns and mass testing. Zhengzhou is set to start a five-day lockdown of its urban districts on Friday.

Foxconn has announced it will coordinate production with other plants in response to disruptions at the Zhengzhou plant, which included violent clashes between workers and security personnel on Tuesday and Wednesday.

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Assembled smartphone exports from Jiangsu province, which is home to additional Foxconn factories, rose 31% in value in October compared to September, according to customs data.
Over the next two years, Foxconn reportedly intends to quadruple the workforce at its Indian iPhone factory.

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