Apple iPhone 14 Pro supply to drop by 6 million units after factory closure in China

Apple iPhone 14 Pro supply to drop by 6 million units after factory closure in China

Apple it will not be able to ship large volumes of its high-end flagship product over the holidays after the largest factory that produced it closed amid China’s latest wave of COVID-19 lockdowns.

An industrial park in China’s Henan province that houses a critical assembly plant for Apple’s iPhones. closed last week for seven days after several cases of COVID-19 were reported. The plant is owned and operated by Foxconn, Apple’s largest iPhone supplier, which announced a COVID “small” outbreak on the plant.

Foxconn’s factory produces up to half of the world’s iPhones and employs up to 350,000 people, many of whom live nearby, for which it is called “iPhone City.”

But the recent shutdown could lead to a supply disruption of up to 6 million iPhones, primarily the higher-priced Pro and 14 Pro Max models of the new iPhone 14. Bank of America Analysts, led by senior equity research analyst Wamsi Mohan, wrote in a note on Sunday.

The supply shortfall of the Pro versions of the latest iPhone is a serious blow to Apple, which was reportedly already dealing with demand lower than expected for non-Pro versions of these products since their release in early September.

Apple and Foxconn had previously emphasized that demand for the Pro versions of the iPhone 14 was strong, but analysts at Bank of America wrote that they were now “concerned” about falling demand.

production delays

Even if it only lasts a week and ends on Wednesday as expected, the closure of Foxconn will have some long-term consequences for Apple.

Mohan’s team wrote that lead times – the time it takes for a product to be shipped and delivered – had already been extended by at least a week as a result of the shutdown, and the bank revised its quarterly production forecast for the plant to 78 million. . units, down from 84 million before closing. The 6 million units lost were mostly evenly distributed between the iPhone 14 Pro and 14 Pro Max models.

Foxconn’s factory utilization rate (the amount of plant resources and equipment being used as a percentage of its total possible output) is currently just 50%, according to analysts, well below the Utilization rate range from 85% to 90% is generally considered ideal.

Mohan’s team forecast that the plant’s utilization rate could increase by as much as 70% during the last two weeks of November and return largely to normal by December, barring the current shutdown being extended. But even if factory production resumes, demand for Apple products is likely to remain relatively low until the second quarter of next year.

Low supply, low demand

With less supply of higher-priced Pro models, analysts warned of a “worse iPhone mix than we expected,” after demand for Pro versions of the new phone. took off in the months after its release.

Apple has been relying on the strong performance of the iPhone 14 Pro and Pro Max to offset falling demand for the phone’s two lower-end models: the iPhone 14 and 14 Plus.

In late September, Apple reportedly scrapped plans to ramp up production of new iPhones as demand stagnated for its two basic models. And on Sunday, the company was said to be cutting production by 3 million units by the end of the year amid lower-than-expected consumer demand. Bloomberg reported.

Strong sales of its new iPhone Pro models were a factor behind Apple’s strong earnings report last week that showed it outperforming many other tech companies. Both Facebook father Meta and Amazon saw losses derived from lower consumer demand Y a decline in advertising revenue.

But with limited supply of its new Pro models due to the closure of Foxconn, Apple’s revenue could dry up fast. in a statement Confirming the plant closure on Sunday, Apple warned that it would lead to smaller shipments of Pro models and “longer wait times” for customers. Apple’s component manufacturers and suppliers sent out a warning signal when they published a drop in sales last quarterforecasting an imminent drop in demand for Apple products, including smartphones and tablets.

China’s ongoing zero COVID policy and shutdown is an ‘absolute gut punch’ for Apple, according to a cheep Monday by Dan Ives, managing director and senior analyst at Wedbush Securities.

iPhone sales this quarter could fall as much as 3% worldwide as a result of the shutdown, Ives added.

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