iPhone manufacturing in China is in limbo amid coronavirus outbreak

Key Points
  • The ripple effect of the novel coronavirus outbreak in China continues this week, leaving iPhone production in the region in limbo.
  • Apple supplier Foxconn was approved to resume production in Zhengzhou, a key manufacturing plant in the region, Reuters reported Sunday citing an unnamed source with direct knowledge.
  • So far only 10% of the workforce, about 16,000 people, have returned, the source told Reuters, adding requests to reopen a plant in Shenzhen were not approved.
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More than a week after shutting down all stores and offices in China amid an outbreak of the coronavirus, the status of Apple's manufacturing workforce in the country remains murky.

Apple supplier Foxconn was approved to resume production in Zhengzhou, a key manufacturing plant in China, Reuters reported Sunday citing an unnamed source with direct knowledge, but so far only 10% of the workforce has returned, or about 16,000 people. Reuters later reported that a Foxconn plant in Shenzhen was approved to resume partial production Tuesday, according to a source with direct knowledge of the matter.

Apple stock was down about 1% most of Monday, but went slightly positive in the late afternoon.

The Zhengzhou plant is "the most critical iPhone production site," making the iPhone 11 series and a new special edition, cheaper iPhone, top Apple analyst Ming-Chi Kuo said in a note to clients Sunday. Apple is expected to unveil the special edition iPhone in March. On Monday, the city of Zhengzhou provided a timeline of when factories can reopen. On Feb. 10 firms with mainly local staff can resume operations. On Feb. 17, firms with minimal staff from areas highly impacted by the outbreak can reopen and on Feb. 24, all factories can return to work.

After the initial return date of Feb. 2 was postponed for the plant, Kuo said he estimates a 40% to 60% labor return rate. At Shenzhen, Kuo said he expects a labor return rate of 30%-50% at the site in charge of making new iPhone models set for release in the second half of the year.

Foxconn did not provide further clarity in a statement issued Monday.

"The welfare of our employees is the highest priority for Foxconn. In keeping with this, we have been closely monitoring the current public health challenges linked to the coronavirus and we are applying all recommended health and hygiene practices to all aspects of our operations," the company said. "These health and safety measures are conducted in tandem with the efforts implemented by relevant government agencies. Our teams in each of our facilities in China are working closely with the respective local government agencies and we are continuing to do that as we implement our post-holiday production schedules. As a matter of policy and for reasons of commercial sensitivity, we do not comment on our specific production initiatives."

Apple did not immediately respond to a request for comment.

Apple is already anticipating the effects of the factory closures, providing wider than typical guidance for the next quarter in its earnings report late last month. In an earlier note, Kuo cut iPhone shipment forecasts by 10% to account for the coronavirus impact but said it was difficult to predict second-quarter shipments due to "the uncertainties of the coronavirus epidemic and consumer confidence."

On Friday, Apple extended its store closures in China beyond its original projection of remaining closed through Feb. 9.

"After thorough consultation with public health experts and government authorities, we are working toward re-opening our corporate offices and contact centers the week of February 10, and we are making preparations to reopen our retail stores," the company said in a statement Friday.

— CNBC's Eunice Yoon contributed to this report.

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