Apple warns of iPhone shipments from China and COVID-related disruptions

  • Apple expects lower shipments of iPhone 14 Pro and Pro Max
  • Apple says factory in China is operating at greatly reduced capacity
  • Apple supplier Foxconn revises down its outlook for the fourth quarter

TAIPEI, Nov 7 (Reuters) – Apple Inc (AAPL.O) expects shipments of high-end iPhone 14 models to fall from what was expected following a major reduction in the production at a virus-infected factory in China, which dims its sales outlook for the year-end holiday season.

Strong demand for new iPhones has helped Apple remain a rare bright spot in the global tech sector that has been battered by spending cuts from soaring inflation and interest rates.

But the Cupertino, Calif.-based company is now a victim of China’s stringent zero COVID-19 policy, which has already prompted many global companies, including Estee Lauder Companies Inc (EL.N) and Canada Goose Holdings Inc. (GOOS.TO), to close their stores in China and reduce their full-year guidance.

“The facility is currently operating at a significantly reduced capacity,” Apple said in a statement Sunday without specifying the impact on production.

“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 what we expect. had planned before,” he said.

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

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

Market research firm TrendForce said last week that it had cut its forecast for iPhone shipments for the December quarter to 2 million to 3 million units from 80 million previously, due to unrest in the Zhengzhou plant, adding that its investigation into the situation revealed that the plant’s capacity utilization rates were now around 70%.

Apple, which kicked off sales of the new iPhones in September, said customers will 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 China’s economy…These headlines are part of the ongoing saga of whether there is any truth in the constant rumors that the authorities are discussing whether some of the measures will be lifted 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 they were sticking to strict coronavirus restrictions, likely dashing hopes recent investors of an easing.

FOXCONN CUTS ITS OUTLOOK

Taiwan’s Foxconn (2317.TW), the operator of the Zhengzhou plant, said on Monday it was working to resume full production at the plant as soon as possible and revised down its outlook for the fourth trimester.

He said he would implement new measures at the factory to curb the spread of COVID-19, including a system that would limit active employees’ movement between their dormitory and the factory area.

The factory also launched a recruitment campaign on Monday, offering workers who had left the factory between October 10 and November 5 a one-time bonus of 500 yuan ($69) if they choose to return. It also announced wages of 30 yuan an hour, higher than the base wages of 17 to 23 yuan an hour that some workers told Reuters they had received.

Shares of Foxconn fell 0.5% in early trading on Monday, trailing a 1.2% rise in the broader index (.TWII).

The Zhengzhou Airport Economic Zone, home to the iPhone factory, entered a seven-day lockdown on Wednesday whose measures included banning all residents from going outside and allowing only vehicles approved on roads in this area. Read more

Foxconn, the world’s largest contract electronics maker, said in a statement that the provincial government of 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 eradicate the pandemic and resume production at full capacity as quickly as possible.”

Foxconn, formerly Hon Hai Precision Industry Co Ltd, is Apple’s largest iPhone maker, accounting for 70% of iPhone shipments globally. It has other smaller production sites in India and southern China.

After guiding “cautious optimism” in the fourth quarter, Foxconn said it would “downgrade” its outlook given events in Zhengzhou.

The fourth quarter is traditionally the hot season for Taiwanese tech companies as they rush to deliver cellphones, tablets and other electronics for the holiday season in Western markets.

Foxconn releases its third quarter results on November 10. He declined to provide further comment on how his factory’s latest restrictions would be implemented.

($1 = 7.2135 Chinese yuan renminbi)

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

Our standards: The Thomson Reuters Trust Principles.

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