Apple's hope for record quarterly sales damped by Zhengzhou restrictions

Amid global headwinds facing the smartphone market, iPhone has been able to buck the trend. However, Apple's hopes for better iPhone sales may be negatively impacted by the COVID restrictions in Zhengzhou, China.

Apple released a statement on its website saying that COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility in Zhengzhou, China, which is currently operating at significantly reduced capacity.

Apple continues to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models, and expects lower iPhone 14 Pro and iPhone 14 Pro Max shipments than previously anticipated, adding that customers will experience longer wait times to receive their new products. Apple said it is working closely with our supplier to return to normal production levels while ensuring the health and safety of every worker.

According to Barclays' research notes, the COVID outbreak in Foxconn's Zhengzhou plant, which accounts for 70% of worldwide iPhone production, is estimated to affect the output of 10-12 million iPhone Pro models for the fourth quarter of 2022.

Meanwhile, Deutsche Bank Securities said in a research note that according to Apple's 10-K document filed on October 28, the company had manufacturing purchase obligations of US$71.1 billion for the third quarter, up 65% annually and 30% quarterly - a sign leading Deutsche Bank Securities to believe that Apple forecasts better iPhone growth than last year. Manufacturing purchase obligations represent non-cancelable purchase orders of components ahead of unit sales and typically covers periods up to 150 days.

Zhengzhou restriction may damp Apple's revenue, which Bloomberg estimates to be a record US$127,163 million. Historically, the fourth quarter contributes to the highest revenue share among the four quarters.

Apple's supply chain diversification may also pick up pace amid the Zhengzhou restrictions. According to an independent analyst Min-chi Kuo, following lockdowns in Zhengzhou, iPhones made by Foxconn in India will grow by at least 150% year-on-year in 2023, and the medium- to long-term goal is to ship 40-45% of iPhones from India, compared with the current 2-4%.

Meanwhile, Foxconn announced on its Weixin account that it has started recruitment for its Zhengzhou facility, and will provide an hourly pay of CNY30 to newly recruited workers.

Source: Bloomberg, compiled by DIGITIMES Asia, November 2022