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Apple warns of lower iPhone shipments as COVID restrictions hamper China factory

Apple warns of lower iPhone shipments as COVID restrictions hamper China factory
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  • Apple expects lower shipments of iPhone 14 Pro and Pro Max
  • Apple says a Chinese factory is operating at greatly reduced capacity
  • Apple supplier Foxconn revises Q4 outlook downwards

TAIPEI, Nov 7 (Reuters) – Apple Inc (AAPL.O) expects fewer premium iPhone 14 shipments than previously expected following a significant production cut at a virus-hit plant in China, dampening its sales outlook for the busy holiday season at the end of the year.

Demand for high-end smartphones assembled at Foxconn (2317.TW) The Zhengzhou plant has helped Apple remain a bright spot in a tech sector battered by consumer spending cuts amid rising inflation and interest rates.

But the Cupertino, California-based provider has fallen victim to China’s zero-COVID-19 policy, which has been seen global companies including 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 significantly reduced capacity,” Apple said Sunday, without specifying the extent of the reduction.

“We continue to see strong demand for the iPhone 14 Pro and iPhone 14 Pro Max models. However, we now expect lower than previously expected iPhone 14 Pro and iPhone 14 Pro Max shipments,” it said in a statement.

Reuters last month reported November iPhone production at Foxconn’s Zhengzhou factory — one of the largest in the world — could slump by as much as 30% due to COVID-19 restrictions.

The factory in central China, which employs around 200,000 people, was shaken by dissatisfaction on strict measures to contain the spread of COVID-19, with many workers fleeing the site.

Market researcher TrendForce last week cut its October-December iPhone shipment forecast by 2 million to 3 million units from 80 million due to the factory’s troubles, adding that its research showed capacity utilization rates of about 70%.

Apple, which began selling its iPhone 14 lineup in September, said customers should expect longer waits.

“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 to address the ongoing rumors that authorities are discussing whether some of the measures will be lifted in the first quarter.”

China on Monday reported the highest number of new COVID-19 infections in six months, with the disruption to the world’s second-biggest economy spreading nationwide since October. Over the weekend, health officials said they would Adhere to strict coronavirus curbsdisappointing investors hoping for some easing.

Meanwhile, Apple expects to produce at least 3 million fewer iPhone 14 phones than planned this year as demand for lower-end models is weak, Bloomberg News reported Monday, citing people familiar with the plan.

The most valuable company in the world with a market cap of $2.2 trillion last month forecast October-December sales growth would slow from the previous quarter’s 8% — although market watchers took a positive view of it in a troubled sector.

“Given that Apple only reported positive guidance two weeks ago, we think this indicates the potential for a longer and tighter lockdown,” Credit Suisse analysts said, expecting iPhone sales to stretch into later quarters be postponed as lost.

They estimate that Apple’s revenue will rise 3% in the current quarter, with iPhone sales rising 2% to $73 billion.

Reuters graphics

FOXCONN REDUCES OUTLOOK

Foxconn of Taiwan is the world’s largest contract electronics manufacturer and Apple’s largest iPhone maker, accounting for 70% of global shipments. It has iPhone manufacturing bases in India and southern China, but its largest is in the city of Zhengzhou in east China’s Henan province.

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 condition of those infected.

On Monday it was said that work was being done to resume full production in Zhengzhou as soon as possible. A person familiar with the matter told Reuters that Foxconn’s target is in the second half of November.

At the request of the local government, Foxconn said it will implement measures to contain the spread of COVID-19, including Restricted movement of employees between their dorm and factory premises.

The manufacturer has it too conducted a recruitment campaign, which is offered to workers who left the plant in October. 10 to Nov. 5 a one-time bonus of 500 yuan ($69) when they return. It was also advertised with salaries of 30 yuan an hour, higher than the base salaries of 17 to 23 yuan some workers were told Reuters.

Zhengzhou Airport’s economic zone, where the iPhone factory is located, was locked down for seven days on Wednesday, with measures including banning residents from leaving their homes and restricting entry to authorized vehicles only. Continue reading

Foxconn said the provincial government has “made it clear that, as always, it will fully support Foxconn.”

“Foxconn is now working with the government to eradicate the pandemic and resume production at full capacity as soon as possible.”

After earlier expressing “cautious optimism” in its fourth-quarter earnings forecast, Foxconn said Monday it would “revise” its outlook in light of events in Zhengzhou.

The fourth quarter is traditionally a hot season for Taiwanese tech companies as they scramble to supply smartphones, tablets and other electronics for year-end holiday shopping in western markets. Foxconn releases its third quarter results on 10/11.

Shares of the company, formerly called Hon Hai Precision Industry Co Ltd, fell 0.5% in Monday trade, while the benchmark index rose 1.5% (.TWII).

($1 = 7.2135 Chinese renminbi yuan)

Reporting by Ben Blanchard and Sarah Wu in Taipei, Caroline Valetkevitch in New York and Jaiveer Shekhawat in Bengaluru; Additional reporting by Brenda Goh; writing by Miyoung Kim; Edited by Daniel Wallis and Christopher Cushing

Our standards: The Thomson Reuters Trust Principles.

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