One company that is extremely interested in how the current situation in China plays out is Apple, with the fate of its sales in its most profitable quarter (the December quarter is the first quarter for the company) very much open to question – falling production means increased wait times for the new iPhone 14 products with rising costs and cash flow shortages.
Apple has not provided any guidance for the current quarter (it stopped back in 2020 because of the impact of the pandemic) but has suggested revenue growth for the three months could be weaker than the 8.1% seen in the three months to December.
Quietly, Apple would likely be happy the police and security officials have taken control of areas where there have been protests – and that includes its huge central China iPhone production facility that seems to have been the trigger for the current wave of unrest.
US futures trended higher in Asia after Monday’s sell off on those fears about China’s stability. Those fears could emerge again if there’s another outbreak of protests about the Covid policies overnight Tuesday but the media reports suggest the huge police presence and mass arrests will deter any repeat.
But the situation will be revisited today with the release of the official Chinese survey of manufacturing and service sector activity levels for November.
The National Bureau of Statistics data is expected to slow a further slowing in the pace of activity from 49.2 for manufacturing and 48.7 for services. At that level the economy is in mild contraction. The November estimates are for a reading of 49 for both manufacturing and services.
But it will be the fallout from events at the huge assembly plant for Apple’s iPhones that will hold attention today and for much of this month as US investors become more concerned about the damage to Apple’s sales ambitions for the new phone.
Earlier this month, Apple confirmed the ongoing turmoil had “temporarily impacted” production ahead of the holiday season, and warned of delays ahead.
“The facility is currently operating at significantly reduced capacity,” Apple said in a statement. “Customers will experience longer wait times to receive their new products.”
The production losses came as a result of Covid control measures at the production hub owned by Taiwan’s Foxconn as thousands of workers fled the plant ahead of a lockdown and then thousands of others protested about the hiring of new staff on higher pay and conditions.
The way Chinese police and security officials supported Foxconn and tried to order and then force workers back to the compound that contains the plant fuelled many of the protests over the weekend in rest of China.
The protests continue to disrupt production and western media say there’s now a shortage of staff at the plant which is delaying iPhone production.
Reuters reported last Thursday that it had been told the production of iPhones will be down 30% this month, meaning a shortage of phones across its huge global sales network heading towards Christmas.
Bloomberg reported Monday that Apple is looking at shortfall of six million iPhone Pros – its most popular product – as a result of spiralling Covid lockdown at the Foxconn plant.
The Zhengzhou plant produces most of the company’s iPhone 14 Pro and Pro Max devices, which have become as Apple’s biggest products in 2022.
Foxconn, Apple’s main subcontractor, locked down its huge factory in Zhengzhou in October as a result of surging Covid cases, in line with China’s zero-Covid policy.
Since then, the factory – which is the world’s largest producer of iPhones, with a workforce of 200,000 – has also been hit by those further protests.
The shortfall could see Apple’s earlier warning upgraded to a downgrade closer to the end of the quarter (Apple’s first).
Dan Ives, an analyst at Wedbush Securities, told CNN Business the shutdown was causing Apple to haemorrhage cash.
“Every week of this shutdown and unrest we estimate is costing Apple roughly $US1 billion ($A1.5b) a week in lost iPhone sales,” he said.
“Now roughly 5 per cent of iPhone 14 sales are likely off the table due to these brutal shutdowns in China.”
Other US brokers suggest that wait times for new iPhones had blown out past Christmas an into early 2023 for delivery.
Apple’s shares have fallen dramatically as a result of the production fears, dropping by 2.63% or $US3.89 on Monday to $US144.22.
The shares are down 4% in the past five days and 6% in the last month. Futures trading showed a small rise heading into Tuesday’s session on Wall Street.
But the dramas for Apple haven’t impacted the share price of its biggest shareholder, Warren Buffett’s Berkshire Hathaway – the shares were up 1% on Monday and 6.2% in the past month.
