Apple warns of hit to iPhone shipments from China COVID disruption

TAIPEI, Nov 7 (Reuters) – Apple Inc (AAPL.O) expects decrease shipments of high-end iPhone 14 fashions than beforehand anticipated following a major manufacturing minimize at a virus-blighted plant in China, dampening its gross sales outlook for the year-end vacation season.

Solid demand for the brand new iPhones has helped Apple stay a uncommon vibrant spot within the world tech sector that has been battered by spending cutbacks due to surging inflation and rates of interest.

But the Cupertino, California-based firm has now fallen sufferer to China’s rigorous zero-COVID-19 coverage, which has already prompted many world corporations together with Estee Lauder Companies Inc (EL.N) and Canada Goose Holdings Inc (GOOS.TO), to shut their shops in China and minimize full-year forecasts.

“The facility is currently operating at significantly reduced capacity,” Apple mentioned in an announcement on Sunday with out elaborating how a lot manufacturing has been impacted.

“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,” it mentioned.

Reuters final month reported that manufacturing of Apple’s iPhones might hunch by as a lot as 30% at one of the world’s largest factories in November due to tightening COVID-19 curbs in China.

Its foremost Zhengzhou plant in central China, which employs about 200,000 individuals, has been rocked by discontent over stringent measures to curb the unfold of COVID-19, with many staff fleeing the positioning.

Market analysis agency TrendForce mentioned final week it has minimize its iPhone shipments forecast for the December quarter by 2-3 million items, from 80 million beforehand, due to the troubles on the Zhengzhou plant, including that its investigation of the scenario discovered that the manufacturing unit’s capability utilisation charges had been now round 70%.

Apple, which launched gross sales of the brand new iPhones in September, mentioned clients will expertise longer wait instances to obtain their new merchandise.

The world’s most precious firm with a market capitalisation of $2.2 trillion forecast in October its income development would fall beneath 8% within the December quarter.

“Anything that affects Apple’s production obviously affects their share price,” mentioned Quincy Krosby, chief world 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 consistent rumours that authorities are discussing whether some of the measures will be lifted in the first quarter.”

China on Sunday reported its highest quantity of new COVID-19 infections in six months, a day after well being officers mentioned they had been sticking with strict coronavirus curbs, probably disappointing latest investor hopes for an easing.

FOXCONN CUTS OUTLOOK

Taiwan’s Foxconn (2317.TW), the operator of the Zhengzhou manufacturing unit, mentioned on Monday it was working to resume full manufacturing on the plant as quickly as doable, and revised down its fourth quarter outlook.

It mentioned it will implement new measures on the plant to curb the unfold of COVID-19, together with a system that may limit working staff’ journey to between their dormitory and manufacturing unit space.

The plant additionally kicked off a recruitment drive on Monday, providing staff who had left the plant between Oct. 10 and Nov. 5 a one-off bonus of 500 yuan ($69) ought to they select to return. It additionally marketed salaries of 30 yuan an hour, larger than the 17-23 yuan a hour base salaries that some staff advised Reuters they acquired.

Shares in Foxconn fell 0.5% in early commerce on Monday, lagging a 1.2% rise within the broader index (.TWII).

The Zhengzhou Airport Economy Zone which homes the iPhone manufacturing unit entered a seven-day lockdown on Wednesday whose measures included barring all residents from going out and solely permitting accepted automobiles on roads inside that space. learn extra

Foxconn, the world’s largest contract electronics maker, mentioned in an announcement that the provincial authorities in Henan, the place Zhengzhou is situated, “has made it clear that it will, as always, fully support Foxconn in Henan”.

“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.”

Foxconn, formally Hon Hai Precision Industry Co Ltd, is Apple’s largest iPhone maker, accounting for 70% of iPhone shipments globally. It has different smaller manufacturing websites in India and southern China.

Having beforehand guided for “cautious optimism” within the fourth quarter, Foxconn mentioned it is going to “revise down” its outlook given occasions in Zhengzhou.

The fourth quarter is historically the new season for Taiwan’s tech corporations as they race to provide cellphones, tablets and different electronics for the year-end vacation interval in Western markets.

Foxconn releases third-quarter earnings on Nov. 10. It declined to present additional touch upon how the most recent curbs in its manufacturing unit can be applied.

($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

Our Standards: The Thomson Reuters Trust Principles.