Is the Foxconn Apple iPhone factory a casualty of China’s semiconductor war retaliation?

Apple’s (NASDAQ: AAPL) biggest iPhone factory has been crippled by China’s ruling party.

Images of workers fleeing the factory in Zhengzhou, after strict COVID-19 control measures were imposed by the Government, have flooded social media over the past 48 hours.

The images purportedly show workers climbing fences surrounding the facility, fleeing on the backs of trucks and in some cases walking with suitcases along highways away from the factory.

The iPhone manufacturing facility is operated by Taiwanese company, Foxconn Technology Group, and employs around 200,000 people.

While China’s strict Zero-COVID policy and associated draconian containment measures have been common-place in the country for many months now, the timing of the iPhone factory disruptions raise suspicious of a politically motivated attack on America’s largest company.

Foxconn Apple factory closure: how it happened

Sources close to the Foxconn factory saga say the first sign of COVID distributions came after Government officials visit the site on Thursday October, 20.

The visit came just days after the United States announced new controls to cripple exports to China of critical technology used to manufacture semiconductors and prevent U.S. citizens from working in comapanies associated with semiconductor manufacturing in China.

This is what the United States Bureau of Industry and Security said about the measures.

“These updates will restrict the People’s Republic of China’s (PRC’s) ability to both purchase and manufacture certain high-end chips used in military applications and build on prior policies, company-specific actions, and less public regulatory, legal, and enforcement actions taken by BIS. The export controls announced in the two rules today restrict the PRC’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.”

The new measures were viewed by experts as a major escalation in the ‘Cold War’ between China and the United States.

Much of China’s semiconductor chip supply and manufacturing equipment does still come from Europe and Japan, but the new U.S. measures leave China extremely vulnerable should Europe and Japan choose to follow the United States’ lead.

So, it’s no surprise many expected a form of retaliation from China, not only to hurt the U.S., but also to spook other countries away from similar moves.

Back to Foxconn.

Insiders say after the so-called COVID outbreak was declared around October, 20, the factory continued for some days as business-as-usual, with additional mandatory testing implemented but no visible mass illness amongst staff.

It was then around one week later when the situation intensified and according to one source “The government seemed intent on bringing the factory to a halt”.

While many workers chose to flee, others were taken away by busses to COVID-19 isolation camps from October 26, leaving the factory at a stand-still.

Retaliation to the United States’s semiconductor measures, targeting US-listed companies with operations in China, is something Hedge Fund Telemetry president, Thomas Thornton pre-empted.

“China could retaliate against US companies such as Apple, and the semiconductor shortage could come back into play,” said Thornton.

He warned other U.S. companies with a significant operational footprint in China could also become victims of China’s retaliation to the U.S. semiconductor restrictions, including Nike, Tesla, General Motors, Starbucks Corporation and Wynn Resorts.

Apple stock price to fall

After reporting a solid earnings beat on Thursday, Apple shares are expected to fall on the back of the Foxconn factory troubles.

According to a Reuters report, output from the factory in November is now expected to be slashed by 30%.

It comes as Apple launches the iPhone 14 amid a period of slowing demand for electronics.

Year-to-date Apple’s share price is down 14 percent, with the company faring better than most large-cap U.S.-listed tech stocks through the 2022 big tech bear market.

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