Apple warns of iPhone supply hits from China amid COVID-19 disruptions

Apple warns of iPhone supply hits from China amid COVID-19 disruptions

  • Apple expects lower shipments of the iPhone 14 Pro and Pro Max
  • Apple says the Chinese factory is operating at drastically reduced capacity
  • Apple supplier Foxconn revises fourth quarter forecast

TAIPEI, Nov 7 (Reuters) – Apple Inc (AAPL.O) expects lower-than-expected shipments of the high-end iPhone 14 models after a significant production cut at a virus-hit factory in China, dampening sales prospects for the year-end holiday season.

Strong demand for the new iPhones has helped Apple remain a rare bright spot in a global tech industry that has been hit by spending cuts due to rising inflation and interest rates.

But the Cupertino, Calif.-based company has now fallen victim to China’s strict zero-covid-19 policy, which has already prompted: many global companies including Estee Lauder Companies Inc (N) and Canada Goose Holdings Inc (GOOS.TO)to close their stores in China and cut their full-year forecasts.

“The facility is currently operating at significantly reduced capacity,” Apple said in a statement Sunday, without elaborating on how much production was affected.

“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,” the statement said.

Reuters last month reports Apple’s iPhone production could drop by up to 30% in November at one of the world’s largest factories due to tightening of COVID-19 restrictions in China.

The main factory in Zhengzhou in central China, which employs about 200,000 people, was: shocked with displeasure Due to strict measures to contain the spread of COVID-19, many workers are fleeing the site.

Market research firm TrendForce said last week that it had cut its forecast for iPhone shipments for the December quarter by 2-3 million units from 80 million earlier due to problems at the Zhengzhou factory, adding that a review of the situation found that the plant’s capacity utilization the level was now about 70%.

Apple, which started selling new iPhones in September, says customers will have to wait longer to receive their new products.

The world’s most valuable company with a market capitalization of $2.2 trillion October forecast Its revenue growth will fall below 8% in the December quarter.

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

“However, this is part of a much deeper story. Uncertainty over the future of China’s economy … These headlines are part of the ongoing saga of whether there is any truth to persistent rumors that authorities are considering whether to lift measures sometime in the first quarter.”

China reported its highest number of new COVID-19 infections in six months on Sunday, a day after health officials said there were adhering to the strict restrictions of the coronaviruslikely disappointing recent investor hopes for easing.

FOXCONN cuts prospects

Taiwan’s Foxconn (2317.TW)The operator of the Zhengzhou plant said Monday it was working to restart production at the plant as soon as possible and revised its forecast for the fourth quarter.

It said it would implement new measures at the plant to contain the spread of COVID-19, including a system that would restrict the travel of employed workers between their dormitory and the factory premises.

The factory too a recruitment drive has been launched Monday, offering workers who left the factory between Oct. 10 and Nov. 5 a one-time bonus of 500 yuan ($69) if they decide to return. It also advertised wages of 30 yuan an hour, higher than the 17 to 23 yuan an hour base salary that some workers said they received.

Shares of Foxconn were down 0.5% in early trading Monday, lagging the broader index by 1.2%. (.TWII).

The economic zone at Zhengzhou Airport, where the iPhone factory is located, went into a seven-day lockdown on Wednesday, with measures including barring all residents from leaving and allowing only approved vehicles on the area’s roads. read more

Foxconn, the world’s largest contract electronics maker, said in a statement that the Henan provincial government, where Zhengzhou is located, “has made it clear that it will fully support Foxconn in Henan as always.”

“Foxconn is now working with the government in a concerted effort to end the outbreak and resume production at full capacity as quickly as possible.”

Foxconn, officially Hon Hai Precision Industry Co Ltd, is Apple’s largest iPhone manufacturer, accounting for 70% of iPhone supplies worldwide. It has other smaller factories in India and southern China.

Having previously been guided by “cautious optimism” in the fourth quarter, Foxconn said it would “revise” its outlook in light of events in Zhengzhou.

The fourth quarter is traditionally a hot season for Taiwanese technology companies as they compete to supply cellphones, tablets and other electronics for the year-end holiday period in Western markets.

Foxconn releases third quarter earnings on November 10. It declined to comment further on how the latest restrictions on its plant would be implemented.

($1 = 7.2135 Chinese Yuan Renminbi)

Reporting by Ben Blanchard in Taipei, Carolyn Valetkiewicz in New York and Jaiver Shekhawat in Bengaluru; Additional reporting by Brenda Goh; By Miyoung Kim; Editing by Daniel Wallis and Christopher Cushing

Our standards. The Thomson Reuters Trust Principles.

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