Apple iPhone 14 Dealt Production ‘Gut Punch’ With Fresh China COVID-19 Lockdowns

Apple says new pandemic lockdowns have ‘temporarily impacted’ production of iPhone 14 Pro and iPhone 14 Pro Max models at the Foxconn factory in Zhengzhou, China.

With light demand already hitting entry-level iPhone models, Apple Sunday said new COVID-19 factory shutdowns in China would create “lower” shipments and “significantly reduced capacity” for its Max and Pro models heading into a crucial holiday shopping season.

Customers should expect longer wait times when ordering, the company said in a statement. China’s “zero COVID” policy strangled production at Apple’s primary iPhone 14 Pro and iPhone 14 Pro Max assembly factory run by Foxconn in Zhengzhou, China.

Wedbush analysts Dan Ives and John Katsingris said the news couldn’t have come at a worse time for Apple—one of the few companies posting strong financial results in the face of tough economic times. “After battling the macro headwinds and delivering a strong September quarter guidance in a stark contrast to the rest of Big Tech, this latest zero Covid situation is an absolute gut punch for Apple in its most important holiday quarter,” the analysts wrote, adding they expect to see shutdowns negatively impacting “roughly” 3 percent of iPhone sales this quarter.

“While not the news any bull wants to hear from Apple, it’s a supply issue and related to China’s zero Covid policy which is a very frustrating situation for Apple (and its investors) yet again but not demand driven,” they wrote. Wedbush is maintaining a $200 price target despite the news.

Taipei, Taiwan-based research firm Trendforce has projected iPhone shipments for the fourth quarter to be lowered by 2. million to 3 million units. Zhengzhou was hit by a wave of COVID-19 outbreaks in the middle of October. The firm said China’s COVID policy could drive down iPhone shipments into the first quarter of 2023, worrying that winter surges of COVID will further impact production.

This is not the first Foxconn shutdown in China that slowed Apple’s production this year. In March, lockdowns in the manufacturing hub of Shenzhen, China, were hard-hit with COVID lockdowns. That lockdown temporarily shuttered two of Foxconn’s factories. Foxconn answered the crisis with a “closed-loop” strategy that had workers living on campus and testing daily. Still, the supply chain for Apple and other tech companies took a big hit. Apple warned of an up to $8 billion revenue hit but managed to keep that drop under $4 billion for its second-quarter results.

Apple said it was focused on working with the factories to protect workers while resuming operations. “As we have done throughout the COVID-19 pandemic, we are prioritizing the health and safety of the workers in our supply chain,” the company said in a statement. “We are working closely with our supplier to return to normal production levels while ensuring the health and safety of every worker.”

Apple was one of the sole bright spots for the tech industry in 2022 as pandemic-fueled demand has waned. The company’s fourth-quarter results beat expectations and delivered an all-time Mac revenue record and overall strong results for its smartphones and wearables.

“The world continues to be unpredictable, as old challenges evolve and new ones emerge,” Apple CEO Tim Cook said during a conference call.

Trendforce said the company could see worsening results in 2023. “The winter season is generally conducive to the spread of diseases such as COVID-19. Hence, there is a possibility that China could enact zero-COVID lockdowns at a more frequent pace in the future. Such a scenario would extend the effects of this policy to the demand side and disrupt Apple’s iPhone production plan for the (first quarter of 2023),” the firm wrote.