Apple Cuts Outlook For iPhone Shipments Again, This Time Due To Chinese Lockdowns

Tyler Durden's Photo
by Tyler Durden
Monday, Nov 07, 2022 - 01:00 AM

For the 2nd time in the past month, and just days after its "not all that bad" earnings presentation which helped AAPL be the only GAMMA stock not to tank after reporting Q3 earnings, late on Sunday Apple said shipments of its newest premium iPhones will be lower than previously expected after China lockdowns affected operations at a supplier’s factory.

In a brief, tersely worded statement, Apple said that it continues to see strong demand for the iPhone 14 Pro and iPhone 14 Pro Max models but the neverending Chinese lockdowns - which have long ago become just a scapegoat for the Chinese economic implosion - mean “customers will experience longer wait times to receive their new products.” Also, on its website, the company said that deliveries of iPhone 14 Pro handsets are currently listed for late November or early December.

Here is the full statement...

COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China. The facility is currently operating at significantly reduced capacity. As we have done throughout the COVID-19 pandemic, we are prioritizing the health and safety of the workers in our supply chain.

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 previously anticipated and customers will experience longer wait times to receive their new products.

We are working closely with our supplier to return to normal production levels while ensuring the health and safety of every worker.

... which company shareholders will wonder why none of this was discussed a little over a week ago when the company reported earnings; to be sure, there was zero mentions of China issues on the earnings call yet anyone following the company knew that it would have to guide down in the future. The only surprise is that the future was just one week later.

Commenting on the release, Knowledge Vital's Adam Crisafuli said that it was "so vague it almost makes us think the main intended audience was the Chinese government, not investors .. an indirect way for them to express their displeasure with the lack of change."  Then again, we doubt China cares what Apple thinks.

The abrupt move by the Chinese government last Wednesday to lock down the Zhengzhou area that includes a Hon Hai Precision Industry iPhone assembly plant until Nov. 9 is expected to further disrupt a factory already grappling with an on-site coronavirus outbreak, worker exodus and enforced quarantine.

Apple said the facility is operating at “significantly reduced capacity,” while Hon Hai, the main listed arm of Taiwan’s Foxconn Technology Group, noted in a separate statement that it’s lowering its fourth-quarter outlook to factor in the lockdown.

“Foxconn is now working with the government in concerted effort to stamp out the pandemic and resume production to its full capacity as quickly as possible,” the Taiwanese company said in a statement.

In the latest Chinese covid-linked hysteria, the local government has ordered people and vehicles off the streets except for medical or other essential reasons, a prohibition that threatens to cut off the flow of additional workers and components needed to rev up production ahead of the holiday-season crush.

The disruption comes at a crucial time for Apple, which launched the iPhone 14 during an unprecedented slump in global electronics demand. While faring better than other smartphone makers, it’s backed off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, Bloomberg reported previously. Apple reported better-than-expected results but warned of a holiday slowdown.

As Bloomberg reminds us, Apple didn’t provide a specific revenue forecast for the current quarter, continuing an approach it adopted at the start of the Covid-19 pandemic. But analysts estimate sales of about $128 billion, which would be an all-time record. That forecast is now in serious jeopardy, and futures have reacted appropriately, with Eminis sliding as much as 1.1% in early trading but have since made up nearly half the initial drop.

Unlike Facebook and Twitter, Apple has yet to unveil major layoffs. Instead, in the face of slowing growth, Apple has paused hiring for many jobs outside of research and development, an extension of its current plan to reduce budgets heading into next year.

Meanwhile, Foxconn’s plant continues to operate within a “closed loop,” or a self-contained bubble that limits contact with the outside world. That is keeping some production going. Apple said on Sunday it is working closely with its supplier to return to “normal production levels while ensuring the health and safety of every worker.”