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Apple faces 5% loss of iPhone sales amid factory worker protests in China, potentially more

Published: 14:16 23 Nov 2022 GMT

Apple Inc -
Covid unrest has broken out at Apple's main supplier Foxconn

Apple Inc (NASDAQ:AAPL) could see a huge fall in iPhone sales over the key Black Friday weekend as it battles supply disruptions in the run-up to the festive season, including from new Covid lockdowns in China to violent protests hitting its principal supplier, Foxconn. 

Analysts said the mismatch between demand and supply could cause "major shortages" leading into Christmas season.

Strikes at Foxconn‘s massive iPhone plant in China's Zhengzhou city saw surveillance cameras and windows smashed, thought to be an eruption of tension over the harsh Covid rules in the country and the contract manufacturer's hapless handling of the shutdowns.

Waiting times for customers in markets including the US and China ticked higher, analysts at UBS noted, with delivery times for the new iPhone 14 models in the US extending late into December, wait times in China, the second largest iPhone market, increased another three days week-over-week to 39 days.

Analysts at Wedbush said the effect of China's "zero Covid" shutdown policy on Foxconn has been "a major gut punch to Apple" this quarter and is believed to have cut roughly 5% of iPhone 14 units out of the supply chain its most important holiday quarter.

This puts the Cupertino company in a "major shortage" heading into the next month.

Already, many Apple stores and retailers are low on iPhone 14 inventory, Wedbush analyst Dan Ives added, with forecasts that the Black Friday weekend will see a fall to roughly 8mln iPhones sales compared to 10mln a year ago, with the gap being "mostly supply driven".

There is also a softer economic climate that is expected to hit demand, though Ives said iPhone upgrade activity through US carriers AT&T and Verizon, as well as via retail stores and online, has been "solid".

"We believe by early December it will be increasingly difficult to get your hands on an iPhone 14 Pro with many delivery times likely pushed through to early January," the Wedbush analyst said.

China production woes are the "albatross" on the Apple story, Ives said, employing a reference to Samuel Taylor Coleridge's poem where Apple is the ancient mariner.

Ives said Zhengzhou could remain at lower capacity in the next few weeks, with worker unrest building and leading to even larger iPhone shortages for Christmas, especially in the US.

"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," he said, stressing he remains positive about demand.

Wedbush maintained its 'outperform' rating and US$200 share price target, while UBS maintained its 'buy' rating at a target of US$180.

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