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HomeMarketApple Supplier Foxconn Says There's Progress at a China iPhone Plant

Apple Supplier Foxconn Says There’s Progress at a China iPhone Plant

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is gradually making progress on resuming full operations at its iPhone assembly plant in Zhenghzhou, China.

About a month ago, Apple (ticker: AAPL) issued an unusual warning, noting that Covid-19 restrictions at the Zhengzhou facility were impacting the availability of the popular iPhone 14 Pro and Pro Max models. Apple said at the time that shipments for those models would be below previous expectations, with longer wait times for buyers.

Foxconn on Monday reported that revenue in November was down 29% from October, and 11% below the year-ago level, largely reflecting the issues in Zhengzhou. (The company had posted year-over-year revenue gains of more than 40% in both September and October.) The company said the November quarter decline was “roughly in line with the company’s expectations.”

Foxconn added that “the overall epidemic situation has been brought under control with November being the most affected period by the epidemic.” 

Foxconn says that in addition to reallocating production capacity at other factories in response to the issues at Zhengzhou, it has “started to recruit new employees,” and is “gradually moving toward the direction of restoring production capacity to normal.” Foxconn added that its outlook for the fourth quarter is about in line with market consensus. Note that in recent weeks there have been worker protests over conditions at the plant, with some staff simply abandoning their jobs on concerns about Covid risks and other factors.

In response to the issues in Zhengzhou, analysts have been slashing expectations for December quarter iPhone shipments. Mizuho analyst Yasuo Nakane today cut his forecast for fourth-quarter iPhone production by 15 million units, to 74 million units; Wedbush analyst Dan Ives likewise sees a shortfall in the range from10 million to 15 million units. Barclays analyst Tim Long takes a gloomier view, asserting in a research note Monday that the miss could be in the range from 15 million to 20 million units.

Long writes that the Zhengzhou plant exited November at a 20% utilization rate, adding that the situation should improve in December, but is still likely to be below 50% utilization at year-end. But Reuters is reporting that according to “a Foxconn source,” the company expects the plant to resume full production in late December or early January.

Aside from the production issues, there are also concerns that demand could be hurt by softening consumer spending. Morgan Stanley analyst Erik Woodring points out in a research note Monday that his firm’s monthly survey of consumer sentiment finds that spending intentions for consumer electronics and PCs “are worsening as we head into the holiday season,” with twice as many respondents as the same time last year expecting to spend less this year.

The survey found a sharp deterioration in spending intentions on consumer electronics in particular for high-income consumers—those with annual income of $150,000 or more. “Consumer electronics and PC spending intentions in both the near- and medium-term remain negative and near all-time lows, supporting our cautious industry view,” he writes.

Neither Apple nor Foxconn immediately responded to requests for comment.

Apple shares are about flat at $147.05, while the
Nasdaq Composite
is down about 1%.

Write to Eric J. Savitz at eric.savitz@barrons.com

Credit: marketwatch.com

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