TAIPEI, Nov 7 (Reuters) – Apple Inc. (AAPL.O) doesn’t expect to ship as many high-end iPhone 14 models as it did before because of a big cut in production at a virus-hit plant in China. This lowers the company’s sales expectations for the holiday season.
Apple is still one of the few bright spots in the global tech industry, which has been hit hard by spending cuts because of rising inflation and interest rates.
But the Cupertino, California-based company has now been hurt by China’s strict zero-COVID-19 policy. This policy has already caused many global companies, like Estee Lauder Companies Inc (EL.N) and Canada Goose Holdings Inc (GOOS.TO), to close their stores in China and lower their full-year forecasts.
Apple said in a statement on Sunday, “The facility is currently operating at a significantly reduced capacity.” The company did not say how much production has been affected.
“There is still a lot of interest in the iPhone 14 Pro and iPhone 14 Pro Max. But we now think that fewer iPhone 14 Pro and iPhone 14 Pro Max will be sold than we thought before,” it said.
Last month, Reuters said that tightening COVID-19 rules in China could cause one of the largest factories in the world to cut iPhone production by as much as 30% in November.
Its main plant in Zhengzhou, China, which employs about 200,000 people, has been shaken by anger over the strict measures taken to stop the spread of COVID-19. As a result, many workers have left the site.
Due to problems at the Zhengzhou plant, the market research firm TrendForce said last week that it has cut its forecast for iPhone shipments for the December quarter by 2-3 million units, down from 80 million. It also said that its investigation of the situation found that the factory is now only using about 70% of its capacity.
Apple started selling the new iPhones in September and told customers that they will have to wait longer to get their new products.
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The most valuable company in the world, with a market capitalization of $2.2 trillion, said in October that its sales growth in the December quarter would be less than 8%.
Quincy Krosby, the chief global strategist at LPL Financial in Charlotte, North Carolina, said, “Anything that affects Apple’s production affects their share price.”
Story on Apple saying the Covid lockdowns at Foxconn in China will slow iPhone 14 Pro and iPhone 14 Pro Max output https://t.co/YX5CUEqCpY
— Mark Gurman (@markgurman) November 6, 2022
“But this is only a small part of a bigger story: the uncertainty about the future of the Chinese economy… These headlines are part of a long-running story about whether or not the rumors that the government is talking about lifting some of the restrictions in the first quarter are true.
China reported the highest number of new COVID-19 infections in the last six months on Sunday. This came a day after health officials said they were sticking to strict coronavirus limits, likely disappointing investors who had been hoping for a loosening.
Foxconn Cuts Outlook
Foxconn (2317. TW), which runs the Zhengzhou factory and is based in Taiwan, said on Monday that it was working to get full production back up and running at the plant as soon as possible. It also lowered its outlook for the fourth quarter.
It said that it would put in place new measures at the plant to stop the spread of COVID-19. One of these is a system that would limit workers’ movement between their dormitories and the factory area where they work.
On Monday, the plant also started a campaign to get people to come back to work. If they did, they would get a one-time bonus of 500 yuan ($69) if they left between October 10 and November 5. It also said that the base pay was 30 yuan an hour, which was more than the 17–23 yuan an hour that some workers told Reuters they got.
Monday morning, shares of Foxconn fell 0.5%, which was less than the 1.2% rise in the broader market (.TWII).
The iPhone factory is in the Zhengzhou Airport Economy Zone, which went into a seven-day lockdown on Wednesday. Residents were not allowed to leave, and only approved vehicles were allowed on the roads in that area. go to site
Foxconn, the world’s largest contract electronics maker, said in a statement that the provincial government in Henan, where Zhengzhou is located, “has made it clear that it will always fully support Foxconn in Henan.”
“Foxconn and the government are now working together to put an end to the pandemic and get back to full production as soon as possible.”
Story https://t.co/YX5CUEqCpY
— Mark Gurman (@markgurman) November 6, 2022
Foxconn, which used to be called Hon Hai Precision Industry Co Ltd, is Apple’s biggest iPhone manufacturer. It makes up 70% of all iPhones that are shipped around the world. It also makes things smaller amounts in India and southern China.
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Foxconn said that because of what happened in Zhengzhou, it will “revise down” its outlook for the fourth quarter. Previously, it had said that it was “cautiously optimistic” about the quarter.
Covid outbreaks at the Zhengzhou plant had led to food shortages and trash piling up in the facilities. Some workers decided to give up their coveted jobs at the company, with one young woman opting to leave and walk home 25 miles.https://t.co/2eYvlP2VLc
— Peter Elstrom (@pelstrom) November 6, 2022
The fourth quarter is always a busy time for Taiwan’s tech companies, as they rush to get phones, tablets, and other electronics to Western markets in time for the holiday season.
On Nov. 10, Foxconn will report its earnings for the third quarter. It didn’t say anything else about how the new rules for its factory would be put into place.
