Apple underlined the problems afflicting China’s economy on Monday with a warning that Covid controls would see current quarter iPhone production, exports and sales fall – at the same time China’s exports and imports both fell last month for the first time in more than two years.
The continuing Covid lockdowns saw China’s trade surplus total $US85 billion in October, little changed from September’s US84.8 billion surplus and $US84.5 billion in the same month of 2021.
The figure was well short of market forecasts of a monthly surplus of $US95.95 billion.
Exports fell 0.3% from a year earlier, the first drop since May 2020, amid lacklustre overseas demand as cost pressures grew globally.
That was a big slowdown from the 5.7% rise in September and market consensus for a 4.3% rise.
Imports shrank at a faster 0.7%, the first drop since August 2020 as domestic demand weakened amid the strict Covid crackdowns and other controls.
That was after a 0.3% rise in September and market forecasts for a 0.1% rise.
Apple’s warning confirmed days of media reports of problems with a lockdown at the huge iPhone assembly plant in central China run by Taiwanese group Foxconn.
Foxconn said it would be revising down its guidance for the 4th quarter because of the problems at the Apple plant and would provide more detail shortly.
The lockdown was due to a Covid outbreak and came as Covid cases (both symptomatic and non-symptomatic) hit six months highs with daily totals above 4,000.
That in turn has seen a stream of restrictions, mass testing movement restrictions and thousands of businesses thrown into the infamous ‘closed loop’ which forces workers to remain locked up in the isolated plant, factory or business.
Apple’s statement came as the Chinese government let it be known that the country is sticking with a strict COVID-19 containment strategy nearly three years into the pandemic.
That should disappoint investors hoping for a quick reopening, although authorities are tweaking their controls to try and manage the virus and keep the economy ticking over in the face of the tough top down policy for overall containment.
The Hong kong share market jumped more than 3% at one stage yesterday but then turned lower while the Shanghai market was in the green early on and fell back into losses in the afternoon, after the trade data was released.
The CSI 300 Index, which includes top stocks from the Shanghai and Shenzhen exchanges also turned down in the afternoon after Friday’s big gain.
Apple said in a surprise statement issued on a Sunday in the US and Monday in Asia that it had temporarily reduced iPhone 14 production because of Covid-19 restrictions at its primary iPhone 14 Pro and iPhone 14 Pro Max assembly plant in Zhengzhou, China.
Apple said the huge factory was operating at “significantly reduced capacity,” and the tech giant warned that it would ship fewer units and that customers would experience longer wait times when ordering devices.
Apple’s warning raises the possibility that it may sell fewer iPhones in the December quarter (its biggest sales period because of the holidays) after it revealed lower than expected growth estimates for the three months with the September quarter results.
In the past week, China has ordered lockdowns in Zhengzhou, where Apple does the majority of its iPhone production. Reuters reported that factory last week saw hundreds of employees flee the scene when the initial lockdown was announced.
That was a situation the Chinese authorities and media tried to ignore but the Apple warning now makes it very real.
What made the warning even tougher for Apple and market investors in the US was the news in the statement that the company continues to see strong demand for the affected models, which are higher-priced than other iPhone models.
So Apple can’t sell its highest margin iPhones because it can’t get enough to meet demand. There could be quite a few empty stockings this Christmas.
Apple’s news means one of China’s major exports will experience a drop in volumes over the next few weeks and then a rise if and when the lockdowns are eased at the factory, and are not held back by restrictions elsewhere in the economy, such as ports.
