Apple warns of COVID disruptions in iPhone shipments from China

Apple Inc expects lower than previously expected shipments of high-end iPhone 14 models after a significant production cut at a virus-hit plant in China, dampening its year-end holiday sales outlook.

Solid demand for the new iPhones has helped Apple remain a rare bright spot in the global tech sector, which has been battered by spending cuts amid rising inflation and interest rates.

But the Cupertino, California-based company has now fallen victim to China’s rigorous zero-COVID-19 policy, which has already prompted many global companies, including Ester Lauder Companies Inc and Canada Goose Holdings Inc, to establish operations in China close and cut forecasts throughout the year.

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

“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.

Reuters reported last month that production of Apple’s iPhones could plummet by as much as 30%
world’s largest factories in November due to tightening COVID-19 curbs in China.

The main plant in Zhengzhou, central China, which employs about 200,000 people, has been rocked by dissatisfaction with strict measures taken to contain the spread of COVID-19, with many workers fleeing the plant.

Market research firm TrendForce announced last week that it had slashed its December quarter iPhone shipment forecast by 2 to 3 million units from a previous 80 million units due to the problems at the Zhengzhou factory, adding that its investigation into the situation found that this is the factory Capacity utilization was now around 70%.
Apple, which started selling the new iPhones in September, said customers will experience longer waits to receive their new products.

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

“Anything that affects Apple’s manufacturing obviously affects their 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 to the constant rumors that authorities are debating whether some of the measures are in place.” be lifted in the first quarter.”

China on Sunday reported the highest number of new COVID-19 infections in six months, a day after health officials said they were sticking to tough coronavirus restrictions, likely dashed recent investor hopes for an easing.

FOXCONN REDUCES OUTLOOK

Taiwanese company Foxconn, which operates the Zhengzhou factory, said Monday it was working to resume full production at the factory as soon as possible and revised downwards its fourth-quarter forecast.

It said it would implement new measures at the plant to curb the spread of COVID-19, including a system that would restrict working employees’ travel between their dorm and the factory area.

Foxconn shares fell 0.5% in early trade Monday, lagging a 1.2% gain in the broader index.

China ordered an industrial park housing the iPhone factory to enter a seven-day lockdown on Wednesday to increase pressure on the Apple supplier, which is scrambling to quell dissatisfaction among workers at the grassroots level.
The Zhengzhou Airport Economic Zone in central China said it will impose “silent management” measures effective immediately, including banning all residents from leaving their homes and allowing only registered vehicles on roads within the area.

Foxconn, the world’s largest custom electronics maker, said in a statement that the provincial government in Henan, where Zhengzhou is located, “has made it clear that it will continue to give full support to Foxconn in Henan.”
“Foxconn is now working with the government to eradicate the pandemic and resume production at full capacity as soon as possible.”

Foxconn, formerly Hon Hai Precision Industry Co Ltd, is Apple’s largest iPhone maker and accounts for 70% of global iPhone shipments. Other smaller production facilities are located in India and southern China.
After previously calling for “cautious optimism” for the fourth quarter, Foxconn said it would “revise downwards” its outlook in light of events in Zhengzhou.

The fourth quarter is traditionally the hottest season for Taiwan’s tech companies as they scramble to supply western markets with mobile phones, tablets and other electronics for the year-end holiday.



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