Finally there’s some good news for
(ticker: AAPL) coming out of China. The city of Zhengzhou–home to the world’s largest iPhone assembly factory–has lifted its lockdown restrictions after five days.
But the damage to iPhone production, ahead of the key holiday period, may have already been done. Protests at the
plant in recent days, as well as Covid-19 measures, have led to analysts predicting severe shortages of iPhone 14 Pro models.
Wedbush analysts see a 10% hit to production, while TFI Asset Management’s Ming-Chi Kuo thinks shipments will be about 20%, or 15 million to 20 million units, lower than expected.
However, they differ on the gravity of the impact for Apple. Wedbush analysts, led by Dan Ives, expect roughly 10 million to 15 million iPhone shipments will be pushed out in the March quarter instead “as supply starts to ramp back up.” Of course, that assumes no further protests or shutdowns.
“The Street will mostly look through this production disaster for Apple as a shift in iPhone timing and not penalize the stock to the full extent,” Ives added. The stock fell 2.1% Tuesday but pointed 0.6% higher in premarket trading Wednesday.
Estimating a demand to supply ratio of 3:1, he said Apple stores, retailers and online channels are “looking empty handed” for most Pro models until early January. A “painful waiting game” will now begin to see what ramped up production looks like and how much it can ease shortages.
But Kuo, pointing to a recession, doesn’t think the demand will be deferred.
It’s a conundrum for investors, too. Holiday demand is unique to the time of year and it remains to be seen whether consumers will simply wait for supply to return.
Wedbush maintained its Outperform rating on the stock, with a target price of $200, implying a 42% upside to Tuesday’s closing price.
“Our bullish thesis on Apple is demand-driven, which is very firm, although these brutal supply shortages in the near-term remain a clear overhang for the stock to navigate,” Ives added.
The events of the past few weeks throw up long-term questions around Apple’s China production–Foxconn produces 70% of iPhones globally. The tech giant won’t want to be as exposed to problems in China over next year’s holiday period and beyond.
Write to Callum Keown at firstname.lastname@example.org