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The iPhone maker has told managers to reduce by as much as half the number of workers on iPhone final assembly lines using automation. If those efforts continue, they could have far-reaching implications for where Apple makes products and China’s labor market.

It was the kind of incident Apple executives never want to repeat. In November 2022, at a factory in Zhengzhou, China—the largest plant in the world for making iPhones—police officers in white hazmat suits beat factory workers, who had begun protesting over strict Covid-19 lockdowns and disputes over pay.

Video of the episode, which took place at a factory operated by Foxconn, Apple’s largest manufacturing partner, circulated on social media, while the disruptions caused iPhone shortages, leading to a sales decline for the smartphone that holiday season. Soon after, Apple’s senior vice president of operations, Sabih Khan, issued an edict to his organization, instructing managers to reduce the number of workers on iPhone final assembly lines by as much as 50% over the next few years, said two former Apple employees.

The Takeaway

• Apple aims to reduce workers on iPhone final assembly lines by up to half over the next few years

• Production of the iPhone 15 had a significant amount of automation

• Pandemic disruptions to iPhone supplies prompted Apple to revisit automation projects

To accomplish that, Apple began greenlighting automation projects for its assembly lines that it had previously mothballed due to high up-front costs, they said. The efforts resulted in a significant amount of automation handling the final assembly for last year’s iPhone 15, according to three people involved in its manufacturing.

Apple’s push for automation could be transformative for the global consumer electronics industry. If Apple can one day more fully automate iPhone production, it would be able to move more of its manufacturing operations from China to countries like Vietnam and India, where experienced manufacturing engineers are harder to come by, according to former Apple manufacturing managers.

Reducing its reliance on China has become more important for Apple due to labor disruptions such as those in Zhengzhou, along with growing tensions between the U.S. and China over trade and Taiwan. Automating more of the production of its devices could even eventually help Apple bring more manufacturing back to the U.S., the former Apple managers say—though that likely wouldn’t mean large quantities of factory jobs.

Over time, increasing automation could also have far-reaching consequences for China’s manufacturing industry, which contributes millions of workers to Apple’s supply chain each year. No other consumer electronics brand operating in the country has the scale to absorb these workers if they become unemployed.

In some cases, some big factories that once made Apple devices have appeared to go dark after the company shifted parts of its manufacturing out of China. Recently, drone footage of a Foxconn factory in Nanning, China, that once produced iPads and MacBooks showed a nearly deserted campus after Foxconn moved the manufacturing of those devices to Vietnam.

An Apple spokesperson declined to comment

Already Apple appears to have reduced the number of people who work on manufacturing its products in China. Earlier this year, Apple disclosed in an annual report on its supply chain that the total number of employees it monitors at its manufacturing partners for work-hour compliance shrank to more than 1.4 million in 2023 from a peak of more than 1.6 million in 2022.

It was the first time that figure shrank year to year in over a decade of Apple publishing the reports. The number of workers fell even as the number of factories Apple monitors in the report increased to over 380 from more than 300 a year earlier.

Apple ships roughly 200 million iPhones a year, accounting for more than half its sales. As a result, the majority of the workers in its supply chain are involved in assembling the iPhone and its related components, according to multiple former Apple employees. In the past, Foxconn’s Zhengzhou factory has employed as many as 300,000 people, who work 12-hour shifts, six days a week, earning at least $800 a month.

To carry out its automation plans, Apple has begun acquiring machine-learning startups to help it replace people who inspect products on its assembly lines. Earlier this year, it bought Canadian startup DarwinAI, which uses computer vision to inspect components like printed circuit boards for defects.

The startup also made small machine learning models that can run on iPhones. If iPhones could test themselves, Apple wouldn’t need to purchase testing equipment at a massive scale. That could make it faster and cheaper to test and calibrate the devices coming off the assembly line in factories, according to a person with direct knowledge of the matter.

And last year, Apple acquired another startup, Palo Alto, Calif.–based Drishti, that helps it analyze video footage of its assembly lines to identify bottlenecks and production problems in real time, the person said. Bloomberg earlier reported on the DarwinAI deal; Apple’s acquisition of Drishti hasn’t been previously reported.

Rising Labor Costs

For a device as high tech as the iPhone, putting each one together has long been an intensely manual process.

In Zhengzhou, for example, workers sit shoulder to shoulder, welding, soldering, screwing and snapping iPhone components into place across more than 100 assembly lines. The lines can each be up to five football fields long from one end to the other, according to multiple people who work in iPhone assembly. Each line can have more than 1,000 workers and produce between 300 and 600 iPhones an hour.

Within the facility, there are separate areas known as subassembly lines where workers prep individual modules such as the main logic board, speakers, receivers, buttons, cameras, wireless charging coils, microphones and chassis for assembly into completed products, the people said. That often involves attaching metal brackets and routing flexible printed circuit boards around the components before they can be plugged into the main logic board.

For years, Apple has dabbled in automation projects for making the iPhone—with mixed results, as The Information reported in 2020.

Employees during lunch hour at a Foxconn factory in Zhengzhou. Photo by Getty

Originally, rising labor costs in China, a desire to increase the consistency of its products and the growing difficulty of recruiting workers to monotonous factory jobs prompted those efforts, said multiple former Apple employees who worked in operations.

But other forces were at play too. Each year, iPhones become more and more difficult to assemble as they become more sophisticated. High turnover at the factories that assemble iPhones in China meant Apple and its manufacturing partners had to break down the assembly of the iPhone into simpler tasks to make it easier for inexperienced workers to complete them.

But that meant total headcount at iPhone factories continued to rise as Apple added more stations on assembly lines to accomplish those simpler tasks, former Apple employees said.

In 2016, Apple conducted a study of the time it took to assemble iPhones and discovered that manual labor comprised just a quarter of the process, said a person with direct knowledge of the matter. The remaining time consisted of transporting components and materials within the factory or simply waiting for other stations to become ready.

Apple executives realized that there was lots of room to automate more of the iPhone’s assembly and reduce bottlenecks on the line, which could increase the line’s productivity while also reducing headcount.

Apple’s early efforts to automate parts of its manufacturing process began with products that had lower sales volumes than the iPhone, such as MacBooks, iPads and Apple Watches. The company deemed automating some of the production of those devices less risky and capital intensive than it would be for the iPhone, according to former Apple employees who worked in its operations group.

In contrast, senior Apple executives were far more cautious about automating iPhone production, concerned that the risks of failure were too high, those former employees said.

In internal meetings at Apple, managers often discussed a cautionary tale: Tesla’s efforts to heavily automate the production of its Model 3 sedan at a factory in Fremont, Calif., which turned out to be a disastrous move. The electric automaker eventually made more of the process manual to speed up production.

Another topic in those discussions was the aversion Apple CEO Tim Cook and Chief Operating Officer Jeff Williams have for fully automated assembly lines, born out of their experience at IBM in the 1990s, where the duo worked previously.

Apple also found it difficult to justify the cost of machinery that might only be used for a single year before the iPhone goes through a design refresh, which would render that equipment obsolete. Other industries, such as automobile manufacturing, can spread the cost of automated equipment over a decade or more as they tend to make the same parts for longer periods of time.

Apple’s mindset on the costs of automation began to change during the pandemic, though. The supply disruptions, prompted partly by China’s brutal Covid-19 lockdowns, convinced executives that automating more of Apple’s production was worth the cost, multiple former employees said.

Stubborn Screws

The leader of Apple’s iPhone automation efforts is Peter Thompson, an Apple vice president and 16-year veteran of the company, who first cut his teeth as a vehicle engineer at Ford, according to five former Apple employees who have worked with him. Thompson is known for his ability to execute and drill deep into the details.

His recent projects for the company include developing a semi-automated factory in the U.S., which performs personalized engravings on Apple products. Thompson took on the project, which included a $100 million investment by Apple, after he bought Apple products for his family one Christmas, only to discover with embarrassment that the engravings had been done incorrectly, said a person who spoke to him.

Over the past year, Thompson’s team has successfully automated parts of the iPhone’s assembly, working closely with manufacturing partners such as Foxconn, Luxshare Precision and Pegatron. Those successes include machines that install metal brackets and flexible printed circuit boards onto components without human aid, said multiple people with direct knowledge of the effort.

These and similar efforts have allowed Apple and its partners to eliminate positions for thousands of workers in China, according to people who work in Apple’s supply chain. For some processes, they have reduced headcount by as much as 30%, according to one employee at an iPhone manufacturing partner.

Still, Apple has run into some hitches. In some cases, it has pressured its manufacturing partners to pay for automation equipment so it can avoid the expense itself, said multiple people familiar with its supplier relationships. The machines can add up to hundreds of millions of dollars in capital expenditures each year given their complexity.

Some of those manufacturers don’t want to buy the equipment because of how specialized it is for iPhone production, which limits their ability to use it to make devices for other clients. They also worry they won’t see a return on their investment in the equipment if Apple changes the design of the iPhone too much in its next models. Apple typically wins in those discussions because of its ability to play one supplier off another.

And some steps in the production process have proved stubbornly resistant to automation.

This year, Apple sought to build on some of its automation successes by using machines to install the iPhone’s buttons, receiver, speaker and main logic board into its chassis, according to three people who worked in Apple’s supply chain. But the machines stumbled in properly fastening those components, which have to be carefully screwed into position at odd angles, the people said.

Late in the development of the iPhone 16—the latest model of the device, due out in the fall—Apple canceled plans to automate these processes because of the high rate of defects, two of the people said. The decision meant Apple and its partners will have to delay their headcount reduction targets for at least another year, they said.

EU Hits Russia With First Sanctions on LNG Shipments

Measure aimed at making Russia’s gas export activities more difficult, hurting energy revenue,

The European Union slapped a raft of new sanctions on Russia over its full-scale invasion of Ukraine, targeting the Kremlin’s liquefied natural gas shipments for the first time.

The sanctions package—the 14th since the outbreak of the war in 2022—bans the re-export of Russian LNG shipments destined to third countries through EU ports, covering ship-to-ship and ship-to-shore transfers, as well as re-loading operations.

The measure is aimed at making Russia’s gas export activities more difficult and hitting the country’s energy revenue, but it falls short of restricting imports of Russian LNG, which EU members are still allowed to purchase despite plans to phase out Russian fossil fuels by 2027.

The EU is also prohibiting new investment and provision of technology, goods and services for the completion of LNG projects under construction—such as Arctic LNG 2 and Murmansk LNG—and imposing sanctions on vessels that are part of Russia’s shadow fleet and used to get around oil price caps and other restrictions.

EU ambassadors agreed on the package last week. The approval was delayed several times due to resistance from some member states over different parts of the deal, notably from Germany and Hungary.

“These measures are designed to target high-value sectors of the Russian economy, like energy, finance and trade, and make it ever more difficult to circumvent EU sanctions,” the EU Council said on Monday.

In response to the bloc’s latest move, Russian Deputy Foreign Minister Alexander Grushko said in comments carried by state news agency TASS that the EU was continuing to escalate political, economic and military tensions with Moscow.

The transshipment ban likely means that Russian players will have to resort to longer shipping routes, Kpler analysts said in a recent report.

According to the data provider, Russia is the second-largest supplier of LNG to the EU after the U.S. So far this year, the EU has received 43.11 million metric tons of LNG, with about 21% coming from Russia and 44% from the U.S. In 2023, Russia exported a total of 32.3 million tons of LNG, with around 51% of these exports delivered to Europe and 48% to Asia.

DNB Markets’ senior energy analyst Helge Andre Martinsen said transshipments of Russian LNG to Asia via EU ports represent only a small portion of the Kremlin’s total LNG exports, and that the new sanctions might actually increase Russian LNG volumes to the EU.

“Imports of Russian LNG, especially to Belgium, France and Spain, have increased and make the EU the largest buyer of Russian gas,” he said in a note to clients last week. “Consequently, we will not be surprised if the previously re-exported Russian LNG out of Europe, which is small in size, now instead will be absorbed by European markets.”

As part of the package, the EU imposed tighter export restrictions against 61 new entities involved in the circumvention of trade restrictions or engaged in the procurement of material support for Russian military operations, including some located in China, Turkey and the United Arab Emirates.

It also banned EU entities operating outside Russia from connecting to the Russian Central Bank’s SPFS—the Russian equivalent of the Swift financial transfer system—as well as transactions with banks facilitating operations for the export, supply or transport of goods and technology that can be used for weapons.

Among other measures, the EU prohibited political parties, think tanks and media providers in the bloc from accepting funds coming from Russia or its proxies, and called on EU parent companies to ramp up checks on their third-country subsidiaries to prevent them from circumventing sanctions. It also further restricted the export of helium, chemicals and other equipment that could support Russia’s industrial base.

The EU sanctions come after the U.S. earlier this month set out restrictions on more than 300 entities and individuals in China and elsewhere as it looks to curb Russia’s access to technology and equipment for its war in Ukraine.

Getir set for break-up and Mubadala cash injection

Shareholders in rapid grocery delivery start-up agree restructuring into two independent businesses

Food delivery start-up Getir has agreed a restructuring that will see Abu Dhabi’s wealth fund Mubadala Investment Company lead a $250mn injection and acquire majority control of its Turkish grocery operations.

Shareholders in the Istanbul-based group approved a break-up on Sunday that will leave it with a food delivery business in Turkey, controlled by existing investor Mubadala, and a separate standalone business comprising its other assets.

Founded in 2015, Getir was a pioneer among a group of start-ups that raised billions of dollars during the Covid-19 pandemic to deliver groceries and other essentials to customers within minutes. However, rising interest rates in the subsequent years and falling technology stock prices damped investor appetite to fund their heavy losses.

Getir was valued at nearly $12bn in 2022, but a slowdown in venture capital markets forced it to slash its operations, and it was valued at less than a quarter of that sum when it raised $500mn last year.

Most of the company’s rapid grocery rivals have already been sold or shut down as consumer demand shifted after lockdowns eased. Meanwhile online food delivery groups in Europe and the US have racked up more than $20bn in combined operating losses since they went public, and remain locked in a battle for market share.

Getir’s Turkish delivery business will be led by its longtime manager Batuhan Gultakan. The company’s founder Nazim Salur will continue to have a role in the entity as a minority investor and board member, according to a statement on Monday.

Salur and Getir’s co-founders will hold the controlling stake in the second standalone group comprising businesses outside of the Turkish grocery operations, including in ecommerce, taxi hailing and the FreshDirect grocery service in New York.

Getir previously had operations in the US and Europe including in the UK, Germany and the Netherlands. It scaled back those efforts this year to focus its delivery operations on its core Turkish market.

Getir has also in the past received significant backing from venture capital group G Squared and prominent investor Michael Moritz, who was previously at the Silicon Valley investor Sequoia Capital for almost 40 years.

“This capital injection reflects our strong confidence in the promising future of the company’s core business in Turkey,” Hani Barhoush, a Getir board member and chief executive of Mubadala’s diversified investments platform, said in a statement.

Mubadala has separately been embroiled in a bitter board fight over the future of the once high-flying European insurance start-up Wefox, the Financial Times has previously reported.

Hedge fund claims Paris-listed lab testing group has built corporate structure ‘optimised for malfeasance’

Shares in French diagnostic and testing group Eurofins tumbled as much as 23 per cent on Monday after hedge fund Muddy Waters revealed a bet against the company, alleging it was “optimised for malfeasance”.

The New York short-selling outfit warned in a report that Eurofins’ accounts “could contain material overstatements of profits, cash balances, and other asset values”.

Luxembourg-based Eurofins, which is listed on the Paris stock market, is a testing specialist that its chair and largest shareholder, Gilles Martin, has built through hundreds of laboratory and corporate acquisitions since its inception in 1987.

The company declined to comment.

Shares of the group have dropped 28.5 per cent this year. They were trading at €42.7 in Paris on Monday afternoon, giving it a market value of €8.2bn.

Eurofins has become a large food, pharmaceutical and environmental testing conglomerate after expanding into medical diagnostics nine years ago. It completed 40 acquisitions for €158mn last year after conducting 59 purchases the previous year. Eurofins reported revenues of €6.5bn and net profit of €308mn for 2023.

Muddy Waters’ report alleged it was a company “of oddities and contradictions”, claiming its accounting seemed prone to errors, and much of its internal financial reporting seemed prone to manipulation.

Eurofins had also started to make smaller acquisitions that did not meet the threshold for disclosure, according to the report. However, the New York hedge fund stopped short of disclosing evidence of wrongdoing.

For two decades following its 1997 initial public offering, Eurofins was one of the best-performing stocks in Europe. In recent years, the company has attracted the attention of short sellers because of questions about its governance, accounting and structure.

In October 2019, London hedge fund Shadowfall published a report on the company titled “Too much cash or too much confusion?!?” that critiqued the group’s reporting and predicted a liquidity crisis.

At the time, Eurofins said the report contained “inaccurate, incomplete, irrelevant or misleading declarations”, and subsequently raised €568mn from shareholders in 2020 as the pandemic boosted its medical testing arm.

Buoyed by Covid-19, Eurofins’ share price reached a September 2021 high of more than €125 per share.

Two-term leader of multilateral lender describes probe as ‘absurd and unfounded’

Werner Hoyer, the European Investment Bank’s former president, is under investigation for corruption, abuse of influence and misappropriation of EU funds, allegations he described as “absurd and unfounded”.

The probe relating to Hoyer, 72, a German economist and former junior minister who led the EU’s bank for a dozen years, is being led by the European Public Prosecutor’s Office, which polices the misuse of EU funds.

The EIB is the EU’s lending arm and the largest multilateral development lender in the world, with a firepower of more than €500bn.

During his two-term stint at the bank, Hoyer played a critical role in recasting its operations towards a more green agenda, while parrying calls for it to take on more risk. He was succeeded by Nadia Calviño, a former Spanish vice-premier, in December at the end of his second term.

In response to questions from the Financial Times, Hoyer said: “The allegations against me are downright absurd and unfounded. I now expect them to be fully investigated and clarified and ask the EIB to co-operate fully with the EPPO. I am also co-operating fully with the EPPO and demand a full clarification of the facts from there.”

The case is one of the most high-profile launched by the EPPO, which like the EIB is based in Luxembourg, since it started operations in 2021.

The prosecutor’s office on Monday announced the EIB had lifted the immunity of two former employees so they could be investigated by the EPPO for suspected corruption, abuse of influence and misappropriation of EU funds.

Hoyer’s lawyer Nikolaos Gazeas said the former president had “expressly requested that his immunity . . . be waived”.

Gazeas said the subject of the investigation was the compensation paid to a departing EIB employee, an agreement signed by the EIB president.

“From a legal perspective, you have to know that the legal requirements for starting a criminal investigation by the EPPO is very low,” Gazeas said. “It is therefore not unusual in legal terms for the signatory of an agreement to also become a subject in an investigation. My client was never involved in the negotiations surrounding the employee’s departure.”

EU officials are granted immunity from legal proceedings unless it is lifted by the management of the institution. 

Calviño has informed the bank’s management committee that the EPPO was looking into her predecessor, a person with knowledge of the matter said.

Steering the bank through the aftermath of the Eurozone debt crisis, Hoyer positioned it as the world’s greenest multilateral bank by pledging to phase out fossil fuel lending and direct more funding to climate action.

Hoyer once described the EIB as growing “more or less undetected in the woods of Luxembourg” over the past six decades.

“I am sometimes surprised that political leaders are not aware what kind of instrument they have in their hands,” he told the FT in 2019. “It’s a political instrument. It serves a political purpose.”

He fiercely guarded the lender’s top credit rating and was reluctant to commit the EIB’s full financial firepower in response to crises ranging from Covid-19 to Russia’s invasion of Ukraine.

A bank spokesperson declined to comment on whether Hoyer was one of the people under investigation, adding that the EIB would “co-operate fully with the European Public Prosecutor’s Office on this matter as required”.

The EIB will also allow the prosecutor to search its premises and archives in Luxembourg, the EPPO said.

Lifting the two former employees’ immunity “will make it possible to gather all the evidence needed, whether inculpatory or exculpatory, to shed full light on the facts under investigation”, the EPPO added.

The Ifo said sentiment for manufacturing and trade fell, while for services and construction it rose

Sentiment at German companies has become more pessimistic on weakening expectations for business conditions ahead, amid growing economic and political uncertainty, according to a monthly survey.

The Ifo Institute’s business-climate index fell to 88.6 in June, from 89.3 in May, data showed Monday. That was against expectations that the index would rise to 89.6, according to economists polled by The Wall Street Journal.

“The German economy is having difficulty overcoming stagnation,” Clemens Fuest, president of the Ifo Institute, said.

The decline was driven by more pessimistic expectations for the next six months, though assessments of the current situation for the German economy remained unchanged, the Ifo said. Sentiment for manufacturing and trade sectors fell, while for services and construction it ticked up.

The Ifo data comes after weakening sentiment in purchasing managers’ surveys published on Friday, dragged by worsening sentiment in the manufacturing sector.

Some of the faltering business sentiment will be down to rising risks to economic growth, perhaps spurred by increased support for populist parties at home and abroad, as the European elections at the beginning of the month showed, Fritzi Koehler-Geib, economist at KfW bank, said.

“Populism could have a particularly negative impact on an export-oriented country like Germany in the longer term,” she said, citing the French legislative election next month and the U.S. presidential vote later in the year.

However, the Ifo Institute last week also upgraded its forecast for economic growth in the country this year to 0.4%, from 0.2% under a previous March forecast, with private consumption set for a modest revival in Europe’s largest economy.

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The bidding war for Vista Outdoor, the parent company of CamelBak water bottles and Remington ammunition, has escalated once more.

Vista is expected to announce on Monday that it has accepted a sweetened $2 billion takeover proposal for its ammo business from the Czechoslovak Group, the Prague-based defense company, DealBook is first to report.

The details: CSG, as the Czech group is known, will now have added $90 million to its original takeover bid. (It increased its bid once before, last month.)

Under the terms of the new deal, Vista shareholders would receive $18 a share in cash for the ammo unit, known as the Kinetic Group, and one share in the company’s new publicly traded outdoor sports division.

It’s the latest twist for Vista. The company has repeatedly rejected takeover offers from MNC Capital, an investment firm run by a former Vista board member. MNC is offering more than $3 billion, which it argues is both a better financial deal and isn’t subject to the national security review that the Czech company is under.

But Vista has maintained that the CSG deal would provide more value for shareholders and that it will win national security approval.

Another bidder briefly emerged this month for Kinetic, with an offer that Vista said was “reasonably expected” to be superior to CSG’s. (While Vista hasn’t named the suitor, it was JDH Capital, an investment firm tied to the energy mogul Jeffrey Hildebrand, DealBook has confirmed after it was first reported by The Financial Times.)

Days later, however, Vista said that its new bidder had walked away; behind the scenes, MNC objected to the offer from JDH, since the two had previously explored a joint bid for Kinetic.

The new CSG deal adds another wrinkle for Vista’s annual meeting, which — after a postponement — is scheduled for July 2. One of two influential proxy advisory firms, Glass Lewis, has recommended backing the CSG offer.

But the other, Institutional Shareholder Services, changed its mind last week. It’s now recommending that shareholders abstain from voting on the deal, citing the regulatory uncertainty of the CSG bid. It supports a measure for Vista to again postpone its meeting and restart negotiations with MNC.