Apple Warns of Impact on iPhone Shipments from China COVID Outage

Apple Warns of Impact on iPhone Shipments from China COVID Outage

By Ben Blanchard and Jayveer Shekhawat

TAIPEI (Reuters) – Apple Inc expects lower shipments of higher-end iPhone 14 models than previously anticipated after a significant production cut at a virus-hit plant in China, clouding its sales outlook for the season. end of year Christmas.

Strong demand for new iPhones has helped Apple remain a rare bright spot in a global tech sector that has been hit by spending cuts due to 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 firms, including Estee Lauder Companies Inc and Canada Goose Holdings Inc, to close their stores. in China and cut the whole year. forecasts

“The facility is currently operating at a significantly reduced capacity,” Apple said in a statement on Sunday without elaborating on how much production has been affected.

“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,” he said.

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

Its main Zhengzhou plant in central China, which employs around 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 research firm TrendForce said last week that it lowered its iPhone shipment forecast for the December quarter by 2-3 million units, from 80 million previously, due to problems at the Zhengzhou plant, adding that his investigation of the situation found that the factory’s capacity utilization rates were now around 70%.

Apple, which launched 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 the Chinese economy…These headlines are part of the ongoing saga as to whether there is any truth to the constant rumors that authorities are arguing whether some of the measures will be lifted in the first quarter.”

China on Sunday reported its highest number of new COVID-19 infections in six months, a day after health officials said they would stick with tight coronavirus restrictions, likely dashing investors’ recent hopes for an easing. .

FOXCONN CUT OUTLOOK

Taiwan’s Foxconn, the operator of the Zhengzhou factory, 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 quarter.

He said he would implement new measures at the plant to slow the spread of COVID-19, including a system that would restrict employee travel between their bedroom and the factory area.

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

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

The Zhengzhou airport economic zone, which is home to the iPhone factory, entered a seven-day lockdown on Wednesday, the measures of which included barring all residents from leaving and only allowing approved vehicles on roads within that area.

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, as always, it will fully support Foxconn in Henan.”

“Foxconn is now working with the government in a concerted effort to end the pandemic and resume production at full capacity as quickly as possible.”

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

Having previously guided “cautious optimism” in the fourth quarter, Foxconn said it will “revise downward” its outlook given the events in Zhengzhou.

The fourth quarter is traditionally peak season for Taiwanese tech companies as they scramble to supply mobile phones, tablets and other electronics for the year-end holiday period in Western markets.

Foxconn releases third-quarter earnings on November 10. He declined to provide further comment on how the latest restrictions would be implemented at his factory.

($1 = 7.2135 Chinese yuan renminbi)

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

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