Apple warns of lower iPhone shipments as Covid curbs China plant

  • Apple expects lower shipments of iPhone 14 Pro and Pro Max
  • Apple has reduced the capacity of its factory in China
  • Apple supplier Foxconn revises Q4 outlook

TAIPEI, Nov 7 (Reuters) – Apple Inc (AAPL.O) China expects lower shipments of premium iPhone 14 models following a significant production cut at a virus-hit factory.

Demand for high-end smartphones assembled at Foxconn (2317.TW) The Zhengzhou plant has helped Apple remain a bright spot in a technology sector hit by consumer spending cuts amid rising inflation and interest rates.

But the California-based retailer has fallen victim to China’s zero-covid-19 policy, which has seen global companies including Canada Goose Holdings Inc. (GOOS.TO)and Estee Lauder Companies Inc (after) Close local stores and reduce projections.

“This facility is currently operating at significantly reduced capacity,” Apple said Sunday, without elaborating on the extent of the reduction.

“We continue to see strong demand for the iPhone 14 Pro and iPhone 14 Pro Max models. However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated,” it said in a statement.

Reuters reported last month that November iPhone output at Foxconn’s Zhengzhou factory could fall by up to 30% due to Covid-19 restrictions.

The factory in central China, which employs about 200,000 people, has been rocked by discontent over strict measures to prevent the spread of COVID-19, with many workers walking off the site.

Market researcher TrendForce last week cut its iPhone shipment forecast for the October-December period from 80 million to 2 million to 3 million units due to factory problems.

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Apple, which started selling its iPhone 14 range in September, has said customers will have to wait longer.

“Anything that affects Apple’s production obviously affects their stock price,” said Quincy Crosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

“But this is part of a much deeper story – the uncertainty surrounding the future of the Chinese economy…These headlines are part of a continuing story about whether there is any truth to the persistent rumors that officials are discussing. Measures will be lifted in the first quarter.”

China on Monday recorded its highest number of new COVID-19 infections in six months, disrupting the world’s second-largest economy since October. Over the weekend, health officials said they would stick with strict coronavirus restrictions, hoping to ease investors.

Meanwhile, Apple expects to produce at least 3 million fewer iPhone 14 handsets this year than planned due to weaker demand for lower-end models, Bloomberg News reported on Monday, citing people familiar with the plan.

The world’s most valuable company, with a market capitalization of $2.2 trillion, forecast last month that October-December revenue growth would slow from 8% in the previous quarter – although market watchers were positive in a weak sector.

“Since Apple reported with positive guidance two weeks ago, this points to the possibility of a longer and tougher lockdown,” said Credit Suisse analysts, who expect iPhone sales to be pushed to later quarters rather than lost.

They estimate Apple’s revenue will rise 3% in the current quarter, with iPhone sales up 2% to $73 billion.

Reuters Graphics

Foxconn cuts outlook

Taiwan’s Foxconn is the world’s largest contract electronics manufacturer and Apple’s largest iPhone maker, accounting for 70% of global shipments. It has iPhone production sites in India and southern China, but its largest is in the city of Zhengzhou in the eastern Chinese province of Henan.

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Local officials recently commented on the number of cases of COVID-19 at the plant. Foxconn declined to release the number of infections or comment on the conditions of those affected.

On Monday, it said it was working to resume full production in Zhengzhou as soon as possible. A person familiar with the matter told Reuters that Foxconn’s target would be in the second half of November.

At the request of the local government, Foxconn said it was implementing measures to prevent the spread of COVID-19, including restricting the movement of workers between the shelter and the factory area.

The manufacturer has also launched a recruitment drive to offer workers who left the plant from October 10 to November 5 a one-time bonus of 500 yuan ($69) upon their return. It advertised wages of 30 yuan an hour, higher than the 17 to 23 yuan base salary, some workers told Reuters.

The Zhengzhou Airport Economic Zone, where the iPhone factory is located, entered a seven-day lockdown on Wednesday, including barring residents from going out and allowing access only to authorized vehicles. read more

Foxconn said the provincial government “has made it clear that it will fully support Foxconn, as always.”

“Poxcon is now working with the government in a concerted effort to contain the outbreak and resume production to its full capacity as quickly as possible.”

Foxconn, which had previously expressed “cautiously optimistic” on its fourth-quarter earnings guidance, said on Monday it would “revise” its outlook for events given in Zhengzhou.

The fourth quarter is traditionally the hottest season for Taiwanese tech companies, as they offer smartphones, tablet computers and other electronic devices in time for the year-end holiday shopping season in Western markets. Foxconn reports its third-quarter earnings results on November 10.

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The company, formally Hon Hai Precision Industry Co Ltd, saw its share price fall 0.5% in Monday trading, versus a 1.5% rise in the benchmark index. (.TWII).

($1 = 7.2135 Chinese Yuan Renminbi)

Reporting by Ben Blanchard and Sarah Wu in Taipei, Caroline Valetkevich in New York and Jayveer Shekhawat in Bangalore; Additional reporting by Brenda Coe; Written by Myeong Kim; Editing by Daniel Wallis and Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.

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