Apple warns of a hit to iPhone shipments from China COVID disruption

  • Apple expects lower shipments of the iPhone 14 Pro and Pro Max
  • Apple says the Chinese factory is operating at a sharply reduced capacity
  • Apple supplier Foxconn revises down Q4 outlook

TAIPEI, Nov 7 (Reuters) – Apple Inc (AAPL.O) expects lower shipments of high-end iPhone 14 models than previously anticipated after significant production cuts at virus-hit factories in China, dampening its sales outlook for the year-end holiday season.

Solid demand for the new iPhones has helped Apple remain a rare bright spot in a global technology sector that has been helped by reduced spending due to inflation and interest rates.

But the Cupertino, California-based company has now fallen victim to China’s strict zero-COVID-19 policy, which has led to many global firms including Estee Lauder Companies Inc. (CONTINUED) and Canada Goose Holdings Inc (GOOS.TO)to close their stores in China and cut the full-year forecast.

“The facility is currently operating at a significantly reduced capacity,” Apple said in a statement on 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 currently expect shipments of the iPhone 14 Pro and iPhone 14 Pro Max to be lower than we anticipated,” he said.

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

Its main Zhengzhou factory in central China, which employs around 200,000 people, has been rocked by discontent over strict measures to prevent the spread of COVID-19, with many workers fleeing it.

Market research firm TrendForce said last week it had reduced its iPhone shipment forecast for the December quarter by 2-3 million units, from 80 million previously, due to difficulties at the Zhengzhou factory, adding that its investigation into the situation found that the factory. the capacity utilization level is now around 70%.

Apple, which launched sales of new iPhones in September, said customers would experience longer wait times to receive their new products.

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

“Anything that affects Apple’s production obviously affects its stock price,” said Quincy Krosby, 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 … this headline is part of the ongoing saga of whether there is any truth to the consistent rumors that the authorities are discussing whether some measures will be lifted in the first quarter.”

China on Sunday reported its highest number of COVID-19 infections in six months, a day after health officials said they were sticking to a tight coronavirus curve, likely disappointing new investors hoping for an easing.

FOXCONN cut outlook

Foxconn Taiwan (2317.TW)The operator of the Zhengzhou plant said on Monday that it was working to resume full production at the plant as soon as possible, and revised its fourth-quarter outlook.

It said it will implement new measures at the factory to block the spread of COVID-19, including a system that will limit the travel of employees who work between dormitories and factory areas.

The plant also kicked off a recruitment drive on Monday, offering workers who have left the plant between October 10 and November 5 a one-off bonus of 500 yuan ($69) if they choose to return. It also advertised a salary of 30 yuan an hour, higher than the basic pay of 17-23 yuan an hour that some workers told Reuters they received.

Shares in Foxconn fell 0.5% in early trade Monday, lagging a 1.2% rise in the broader index (.TWII).

The Zhengzhou Airport Economic Zone where the iPhone factory is located entered a seven-day lockdown on Wednesday that included banning all residents from exiting and allowing only approved vehicles on the road in the area. read more

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

“Foxconn is now working with the government in a concerted effort to end the pandemic and resume production to 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 shipments globally. It has other small production sites in India and southern China.

Having previously guided for “cautious optimism” in the fourth quarter, Foxconn said it would “revise downward” the event it presented in Zhengzhou.

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

Foxconn released its third quarter earnings on November 10. It declined to provide further comment on how the latest curbs on its factories will be implemented.

($1 = 7.2135 yuan Chinese renminbi)

Reporting by Ben Blanchard in Taipei, Caroline Valetkevitch in New York and Jaiveer Shekhawat in Bengaluru; Additional reporting by Brenda Goh; Written by Miyoung Kim; Editing by Daniel Wallis and Christopher Cushing

Our standards: Thomson Reuters Trust Principles.

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