Foxconn Extends Delay, Won't Restart iPhone Production Until Late February

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by Tyler Durden
Wednesday, Feb 05, 2020 - 06:12 AM

Everything is wonderful Wednesday morning, because an unverified report from Chinese state television sparked a massive surge in equity futures as the Communist Party-controlled media intimated that the coronavirus might soon be cured.

Cure or no cure, it's clear the Chinese are going all-in on propaganda for the sake of preserving 'social cohesion'. It might sound crazy, but it's beyond the grasp of algos to process the likelihood that Beijing is simply trying to regain control of the narrative as they struggle to get in front of the inevitable reckoning with the truth.

Economists have been trying to gauge the blowback from the outbreak as the virus begins to disrupt global supply chains, but as more factories on the mainland announce extended shutdowns and delays, that's getting increasingly difficult to do.

Yesterday, we noted how Hyundai Motor Co. and its sister Kia Motors Corp. suspended production lines in South Korea after it was hit with a parts shortage from China as the virus outbreak broadened. 

Now there is a new report that could create huge problems for America's most valuable company: Apple supplier Foxconn said Wednesday that its facilities in China could take several weeks to resume full production, or at least that's what one source with insider knowledge told Reuters

Foxconn is responsible for assembling Apple iPhones in China.

We noted Monday that Foxconn halted "almost all" of its production lines until Feb. 10.

Any production delays after that could dramatically impact Apple's iPhone shipments abroad.

Reuters' source said full resumption for production at the company's factories might not arrive until late February or early March.

Reports of Foxconn halting factory output in China have yet to be adequately addressed by the company, nor has Apple given details on the potential financial impact. 

Morningstar analyst Don Yew said there should be a limited impact on Foxconn's supply chain if factories are closed down in Wuhan for an extended period.

The big concern Yew said, is that if the smartphone manufacturing hub in Guangdong is shut down for an extended period, it would then start disrupting Apple iPhone shipments, possibly creating shortages of iPhones.

In a separate report, Bloomberg notes that Foxconn slashed its 2020 revenue outlook this week after its factories in the Chinese city of Zhengzhou, the area where most of the smartphones are made, will be shut down until next week and might not be back to full production by the end of the month.

Foxconn Chairman Young Liu told Bloomberg that lost production has forced the company to reprice sales for the year from an increase of 3%-5% to 1%-3%.

Might this supply chain shock in China highlight the gulf between Apple shares' pricing and fundamentals? Looks like we'll soon find out.