Apple expects lower shipments of premium iPhone 14 models than previously anticipated following a significant production cut at a virus-blighted plant in China, dampening its sales outlook for the busy year-end holiday season.
Demand for high-end smartphones assembled at Foxconn’s Zhengzhou plant has helped Apple remain a bright spot in a technology sector battered by consumer spending cuts amid surging inflation and interest rates.
But the Cupertino, Calif.-based vendor has fallen victim to China’s zero-COVID-19 policy, which has seen global firms including Canada Goose and Estee Lauder shut local stores and cut forecasts.
“The facility is currently operating at significantly reduced capacity,” Apple said Sunday without detailing the scale of the reduction.
“We continue to see strong demand for 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 anticipated,” it said in a statement.
Apple shares dropped 1% to $136.89 on Monday.
Reuters last month reported that iPhone output could slump as much as 30% in November at Foxconn’s Zhengzhou factory – one of the world’s biggest – due to COVID-19 restrictions.
The factory in central China, which employs about 200,000 people, has been rocked by discontent over stringent measures to curb the spread of COVID-19, with many workers fleeing the site.
Market researcher TrendForce last week cut its iPhone shipment forecast for October-December by 2 million to 3 million units, from 80 million, due to the factory’s troubles, adding its investigation found capacity utilization rates around 70%.
Apple, which began selling its iPhone 14 range in September, said customers should expect longer waiting times.
“Anything that affects Apple’s production obviously affects their share price,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, NC.
“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 as to whether there is any truth to the consistent rumors that authorities are discussing whether some of the measures will be lifted in the first quarter.”
China on Monday reported its highest number of new COVID-19 infections in six months, with disruption to the world’s second-largest economy spreading nationwide since October. At the weekend, health officials said they would stick with strict coronavirus curbs, disappointing investors hoping for easing.
Meanwhile, Apple expects to produce at least 3 million fewer iPhone 14 handsets this year than planned due to weak demand for lower-end models, Bloomberg News reported on Monday, citing people familiar with the plan.
The world’s most valuable firm, with a market capitalization of $2.2 trillion, last month forecast October-December revenue growth would slow from the previous quarter’s 8% – though market watchers regarded that favorably in a battered sector.
“Given that Apple reported only two weeks ago with positive guidance, we think this points to the potential for a longer and more severe lockdown,” Credit Suisse analysts said, expecting iPhone sales to be pushed to later quarters than lost.
They estimated Apple’s revenue to 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 manufacturer and Apple’s biggest iPhone maker, accounting for 70% of shipments globally. It has iPhone production sites in India and southern China, but its biggest is in the city of Zhengzhou in the eastern Chinese province of Henan.
Local officials recently commented on cases of COVID-19 at the plant. Foxconn has declined to disclose the number of infections or comment on the conditions of those infected.
On Monday, it said it was working to resume full production at Zhengzhou as soon as possible. A familiar person with the matter told Reuters that Foxconn’s target is by the second half of November.
At the request of the local government, Foxconn said it would implement measures to curb the spread of COVID-19, including restricting employee movement to between their dormitory and factory area.