Workers flee China's biggest iPhone factory over Covid outbreak

New Delhi(CNN Business) Foxconn, one of Apple's largest suppliers, is wrestling with major disruption at its biggest iPhone assembly factory in China, as anxious workers reportedly flee the locked-down facility, according to social media videos.

The Taiwanese company is racing to control a Covid outbreak at its campus in the central Chinese city of Zhengzhou. On Wednesday, authorities imposed a seven-day lockdown of the area that houses the Foxconn plant, an order that could hit the iPhone assembler's production and shipments.

The lockdown and the exodus are putting tremendous strain on Foxconn just before the key holiday shopping season begins and highlights how the country's stringent zero-Covid policy is hurting international business.

"[We] fully understand your eagerness to go back home," Foxconn told its employees over the weekend, according to a post on Zhengzhou government's official WeChat account.

"For employees who voluntarily stay in the company's factory area, the port government and the company will jointly ensure everyone's...health and safety," it added.

Analysts said the chaos at Zhengzhou could jeopardize Apple and Foxconn's output in the coming weeks. Ivan Lam, senior research analyst at Counterpoint, estimated that between 10% and 30% of iPhone 14 production could be affected in the near term if the situation did not stabilize.

The Zhengzhou campus is the world's biggest iPhone factory and typically accounts for as much as 85% of iPhone assembly capacity, according to Lam's estimates.

A Foxconn spokesperson told Chinese state media that the company is trying to boost production at other sites.

"At present, because now is the peak production season... [there is] a large demand for workers," a Foxconn spokesperson told Henan Daily on Monday, adding that the company was "also coordinating back-up production capacity at other sites."

Foxconn and Apple did not respond to a request for comment from CNN.

Shares in Foxconn, also known as Hon Hai Precision Industry, fell 2.6% on Tuesday.

Quadrupling bonuses

Videos of many people leaving Zhengzhou on foot have gone viral on Chinese social media in recent days. The city, which has a population of more than 12 million, imposed sweeping lockdown measures earlier last month after identifying dozens of Covid-19 cases.

State media has said that many Foxconn workers are among those walking miles to escape the city. Calling it a "helpless move for some employees," a Foxconn manager told media outlet Yicai that workers are panicking over the spread of the virus at the factory and lack of access to official information.

Foxconn said it was organizing vehicles for employees wishing to return home, according to a post on Zhengzhou government's official WeChat account over the weekend.

The company has also quadrupled daily bonuses for workers at the plant this month, it said in a post on its official WeChat account on Tuesday.

While these disruptions will impact iPhone production in the near term, analysts say it may not dent Apple's iPhone shipments in the key holiday season.

"I think in one to two weeks, things will get back to normal, given the current status," Lam said.

"They still have a lot of alternative production sites," he said, adding that Foxconn had already begun shifting production to other facilities in China, such as in the southern province of Guangdong. "Things are under control now."

And, as Beijing shows few signs of moving away from its rigid Covid policies, Apple has started to boost production in other countries, including India, to reduce its dependence on China.