TAIPEI, Nov. 7 (Reuters) – Apple Inc (AAPL.O) It expects fewer shipments of premium iPhone 14 models than previously expected after a massive production cut at a virus-infested factory in China slashed its sales forecast for the busy year-end holiday season.
The demand for high-end smartphones has been aggregated at Foxconn (2317.TW) The Zhengzhou factory has helped Apple remain a bright spot in the technology sector, which has been hit by cuts in consumer spending amid rising inflation and interest rates.
But the Cupertino, California-based seller has fallen victim to China’s no-spreading COVID-19 policy, which has seen global companies including Canada Goose Holdings Inc. (GOOS.TO)and Estee Lauder Companies Inc. (EL.N) Close local stores and lower expectations.
“The facility is currently operating at significantly reduced capacity,” Apple said Sunday, without specifying the size of the reduction.
“We continue to see strong demand for the iPhone 14 Pro and iPhone 14 Pro Max models. However, we now expect iPhone 14 Pro and iPhone 14 Pro Max shipments to be lower than we previously expected,” it said in a statement.
Reuters reported last month that iPhone production could fall by as much as 30% in November at Foxconn’s Zhengzhou plant – one of the world’s largest – due to COVID-19 restrictions.
The plant in central China, which employs about 200,000 people, has been shocked by the strict measures to curb the spread of COVID-19, with many workers fleeing the site.
Market researcher TrendForce last week lowered its forecast for iPhone shipments in the October-December period by 2 million to 3 million units, from 80 million, due to factory problems, adding that its investigation found capacity utilization rates around 70%.
Apple, which began selling its iPhone 14 lineup in September, said customers should expect longer waiting times.
“Obviously anything that affects Apple’s production affects its 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 the ongoing saga over whether there is any truth to the persistent rumors that authorities are debating whether some measures will be lifted in the first quarter.”
China on Monday reported the largest number of new COVID-19 infections in six months, with the world’s second-largest economy turbulent nationwide since October. Over the weekend, health officials said they would stick to strict coronavirus restrictions, disappointing investors hoping for relief.
Meanwhile, Apple expects to produce at least 3 million less iPhone 14 devices this year than planned due to weak demand for low-end models, Bloomberg News reported Monday, citing people familiar with the plan.
The world’s most valuable company, with market capitalization of $2.2 trillion, last month forecast revenue growth from October to December to slow from 8% the previous quarter — although market watchers viewed that favorably in a troubled sector.
“Given that Apple only reported positive guidance two weeks ago, we believe this indicates the potential for a longer and more severe shutdown,” Credit Suisse analysts said, expecting to push iPhone sales into later quarters rather than lose them.
They estimated that Apple’s revenue would rise 3% in the current quarter, with iPhone sales growing 2% to $73 billion.
Foxconn CUTS OUTLOOK
Taiwan’s Foxconn is the world’s largest contract electronics maker and Apple’s largest iPhone maker, accounting for 70% of shipments globally. It has iPhone production sites in India and southern China, but the largest is located in Zhengzhou in east China’s Henan Province.
Local officials recently commented on cases of COVID-19 at the plant. Foxconn declined to reveal the number of infections or comment on the conditions of those injured.
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 was the second half of November.
At the request of the local government, Foxconn said it will implement measures to curb the spread of COVID-19, including restricting the movement of employees between their residence and the factory area.
The manufacturer has also launched a recruitment drive, offering workers who left the factory between October 10 and November 5 a one-time bonus of 500 yuan ($69) if they return. It also announced an hourly wage of 30 yuan, up from 17 to 23 yuan basic salaries that some workers told Reuters they received.
The Zhengzhou Airport Economic Zone, which houses the iPhone factory, went into a seven-day lockdown on Wednesday with measures that included preventing residents from going outside and only allowing access to approved vehicles. Read more
Foxconn said the provincial government “has made it clear that they will fully support Foxconn as always”.
“Foxconn is now working with the government in a concerted effort to stem the epidemic and resume production at full capacity as quickly as possible.”
Having previously expressed “cautious optimism” in its fourth-quarter earnings guidance, Foxconn said on Monday it would revise its forecast given events in Zhengzhou.
The fourth quarter is traditionally a hot season for Taiwanese tech companies as they race to supply smartphones, tablet computers and other electronic devices for the year-end shopping period in western markets. Foxconn released its third-quarter earnings results on November 10.
The company, officially Hon Hai Precision Industry Co Ltd, saw its share price fall 0.5% in trading Monday, versus a 1.5% rise in the benchmark index. (.twii).
(dollar = 7.2135 Chinese yuan)
Additional reporting by Ben Blanchard and Sarah Wu in Taipei, Caroline Valetkevich in New York and Javier Shekhawat in Bengaluru; Additional reporting by Brenda Goh. Written by Myung Kim. Editing by Daniel Wallis and Christopher Cushing
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