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Apple (AAPL) Puts Foxconn Factory in India on Probation

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Apple AAPL recently put Foxconn’s factory in India on probation amid worker protests and an investigation that revealed substandard living conditions.

Per a Reuters article, Apple’s key assembly partner Foxconn has been facing labor issues in its factory located in the town of Sriperumbudur town near Chennai as complaints of substandard living were raised by the workers.

An investigation conducted by independent auditors found that the remote dormitory accommodations and dining rooms being used for employees do not meet necessary requirements. Apple is working with the supplier to ensure that necessary improvements in living conditions are made.

Until the issue is resolved, factory operations have been halted. Meanwhile, employees will be paid during this period of absence from work.

Apple Inc. Price and Consensus

Apple Inc. Price and Consensus
Apple Inc. Price and Consensus

Apple Inc. price-consensus-chart | Apple Inc. Quote

Labor Violation in India: A Headwind for Apple

Foxconn has apologized for the issue and promised to take immediate steps to improve the facilities and services.

It’s almost déjà vu for Apple as the company had to put another iPhone maker Wistron on probation a year ago following worker riots over unpaid wages.

Apple is reportedly planning to mass produce iPhone 13 in India beginning February 2022. Expansion of its manufacturing hub in India is anticipated to boost Apple’s supply of iPhones. It is estimated that 20-30% of iPhones produced in India will be exported. It will boost the supply of the iPhone 13, which has garnered significant demand in the local market.

However, labor violation issues can put these plans under jeopardy. The pandemic-induced chip shortage and supply chain constraints are already costing Apple in billions of revenues ($6 billion in fourth-quarter fiscal 2021). Labor violation issues that halt production affect Apple’s capability to meet demand, which in turn might impact revenues further.

Reportedly, Apple has lowered its iPhone production target for the fourth quarter. Per Investors Business Daily, Mizuho Securities analyst Yasuo Nakane lowered his estimates for iPhone production in the fourth quarter to 90 million units from 95 million — a production decrease of 4% year over year.

However, in the first quarter of 2022, Nakane anticipates Apple to make 66 million iPhones, up 20% year over year. Meanwhile, the same for the full year of 2022 is expected at 259 million iPhones, reflecting an increase of 9%.

Apple’s Share Prices Continue to Soar

Apple is on the verge of hitting of $3 trillion market capital, thanks to strong demand for iPhone.

However, Apple has underperformed its Computer-Mini-Computer industry peers 3D Systems DDD and HP HPQ, while outperforming Lenovo LNVGY on a year-to-date basis.

Shares of Apple, which currently has a Zacks Rank # 3 (Hold), have appreciated 35.3% on a year-to-date basis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In contrast, Lenovo, HP and 3D Systems’ shares have returned 24.8%, 54.4% and 109.3%, respectively, year to date.

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