- Apple expects lower shipments of iPhone 14 Pro and Pro Max
- Apple says a plant in China is operating at severely reduced capacity
- Apple supplier Foxconn revises down Q4 outlook
TAIPEI, Nov 7 (Reuters) – Apple Inc ( AAPL.O ) expects lower-than-expected shipments of premium iPhone 14 models after a major production cut at a virus-tainted plant in China , which dampened its sales outlook for the year-end rush. holiday period
Demand for high-end smartphones assembled at the Foxconn ( 2317.TW ) plant in Zhengzhou has helped Apple remain a bright spot in a technology sector hit by cuts in consumer spending amid rising inflation and interest rates.
But the Cupertino, Calif.-based retailer has fallen victim to China’s zero-covid-19 policy, which has seen global companies such as Canada Goose Holdings Inc ( GOOS.TO ) and Estee Lauder Companies Inc ( EL.N ) close local stores and cut forecasts.
“The facility is currently operating at a significantly reduced capacity,” Apple said on 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 had anticipated,” he said in a statement.
Reuters reported last month that iPhone production could fall by as much as 30% in November at Foxconn’s factory in Zhengzhou, one of the world’s largest, due to COVID-19 restrictions.
The factory in central China, which employs about 200,000 people, has been rocked by discontent over strict 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 factory problems, adding that their research found capacity utilization rates around 70%.
Apple, which began selling its iPhone 14 range in September, said customers should expect longer wait times.
“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… These headlines are part of the ongoing saga of whether there is any truth to the persistent rumors that the authorities are discussing whether some of the measures will be lifted during the first quarter.”
China reported the highest number of new COVID-19 infections in six months on Monday, with disruption to the world’s second-largest economy spreading across the country since October. Over the weekend, health officials said they would stick with tight coronavirus restrictions, disappointing investors hoping for relief.
Meanwhile, Apple expects to produce at least 3 million fewer iPhone 14 phones this year than expected due to weak demand for lower-end models, Bloomberg News reported Monday, citing people familiar with the plan.
The world’s most valuable company, with a market capitalization of $2.2 trillion, forecast last month that revenue growth from October to December would slow from 8% in the previous quarter, although market watchers viewed this favorably in a battered sector.
“Given that Apple reported positive guidance just two weeks ago, we believe this points to the potential for a longer and more severe lockdown,” said Credit Suisse analysts, who expect iPhone sales to ‘extend to quarters following the loss.
They estimated Apple’s revenue to rise 3% in the current quarter, with iPhone sales growing 2% to $73 billion.
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FOXCONN CUT OUT PERSPECTIVES
Taiwan’s Foxconn is the world’s largest electronics contract manufacturer and Apple’s largest iPhone maker, accounting for 70% of global shipments. It has iPhone production sites in India and southern China, but the largest is in the city of Zhengzhou in the eastern Chinese province of Henan.
Local officials recently commented on the 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 in Zhengzhou as soon as possible. A person familiar with the matter told Reuters that Foxconn’s target is the second half of November.
At the request of the local government, Foxconn said it would implement measures to slow the spread of COVID-19, including restricting the movement of employees between their dormitory and the factory area.
The manufacturer has also launched a recruitment drive, offering workers who left the plant from October 10 to November 5 a one-time bonus of 500 yuan ($69) if they returned. It also announced wages of 30 yuan an hour, higher than the base wages of 17 to 23 yuan that some workers told Reuters they received.
Zhengzhou Airport’s Economic Zone, which is home to the iPhone factory, went into a seven-day lockdown on Wednesday with measures including banning residents from leaving and allowing only approved vehicles to enter. Read more
Foxconn said the provincial government “has made it clear that, as always, it will support Foxconn.”
“Foxconn is now working with the government in a concerted effort to eliminate the pandemic and resume full production as soon as possible.”
Having previously expressed “cautious optimism” in its fourth-quarter earnings guidance, Foxconn said on Monday it would “revise downward” its outlook due to events in Zhengzhou.
The fourth quarter is traditionally a hot season for Taiwanese technology companies as they race to supply smartphones, tablets and other electronics for the year-end holiday shopping period in Western markets. Foxconn reports its third-quarter results on November 10.
The company, formally Hon Hai Precision Industry Co Ltd, saw its share price fall 0.5% in Monday trade, against a 1.5% rise in the index reference (.TWII).
($1 = 7.2135 Chinese Yuan Renminbi)
Reporting by Ben Blanchard and Sarah Wu 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
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