{"id":19566,"date":"2022-11-29T13:06:57","date_gmt":"2022-11-29T13:06:57","guid":{"rendered":"https:\/\/mailinvest.blog\/index.php\/2022\/11\/29\/chinas-woes-could-take-a-bite-out-of-apples-bottom-line\/"},"modified":"2022-11-29T13:06:57","modified_gmt":"2022-11-29T13:06:57","slug":"chinas-woes-could-take-a-bite-out-of-apples-bottom-line","status":"publish","type":"post","link":"https:\/\/mailinvest.blog\/index.php\/2022\/11\/29\/chinas-woes-could-take-a-bite-out-of-apples-bottom-line\/","title":{"rendered":"China’s Woes Could Take a Bite Out of Apple’s Bottom Line"},"content":{"rendered":"

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A draconian Covid lockdown and work disruption at an iPhone factory in China might take some of the jolly out of Apple\u2019s holiday season.<\/p>\n

Worker unrest at the Zhengzhou Foxconn factory could result in a production shortfall of six million iPhones, just as the holiday season is about to enter the home stretch, according to a report Monday by Bloomberg.<\/p>\n

The Foxconn situation is further complicated by protests spreading across China over its zero-Covid policy, which has resulted in residential lockdowns and business closures in many major cities, including Zhengzhou.<\/p>\n

Production delays have resulted in delivery times for the iPhone 14 Pro and Pro Max to be 37 days, according to guidance from Counterpoint Research<\/a>. Delivery times for the iPhone 14, however, remain at three days.<\/p>\n

Meanwhile, Wedbush Securities estimates iPhone production shortfalls during the quarter from 5% to 10%.<\/p>\n

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\u201cIf a holiday gift happens to be an iPhone 14 Pro model, you can pretty much write off the holiday at this point,\u201d said Gene Munster, co-founder of Loup Ventures<\/a>, a venture capital firm in Minneapolis.<\/p>\n

\u201cYou may get lucky by going through a carrier. They have some inventory,\u201d he told TechNewsWorld. \u201cIt appears that Apple is giving more inventory to carriers than to their own stores.\u201d<\/p>\n

Ross Rubin, the principal analyst at Reticle Research<\/a>, a consumer technology advisory firm in New York City, explained that the carriers\u2019 iPhone inventory was produced before problems in China began to escalate.<\/p>\n

\u201cThose problems could have more impact on the carriers as we approach Christmas,\u201d Rubin told TechNewsWorld.<\/p>\n

Munster added that inventory might pop up periodically at Apple and other stores, but it sells quickly.<\/p>\n

Sophisticated Supply Chain<\/h3>\n

Tim Bajarin, president of Creative Strategies<\/a>, a technology advisory firm in San Jose, Calif., cautioned that Apple has not confirmed that current conditions will affect its holiday sales but acknowledged that sources close to the Foxconn factory are suggesting there are production problems at the facility caused by issues with workers\u2019 compensation.<\/p>\n

\u201cThe bigger problem, though, is the Covid lockdowns,\u201d Bajarin told TechNewsWorld. \u201cTaken together, there\u2019s a real possibility that Apple will be short on delivering the number of iPhones they predicted for this quarter.\u201d<\/p>\n

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Chart courtesy of Counterpoint Research<\/p>\n\n

\u201cApple has an extraordinarily sophisticated supply chain capability and is undoubtedly factoring the China factory protests into their ability to deliver products before Christmas,\u201d added Mark N. Vena, president and principal analyst at SmartTech Research<\/a> in San Jose, Calif.<\/p>\n

\u201cThere will be some impact, though it will vary from product to product. It\u2019s very possible that some popular products \u2014 like AirPods \u2014 might see delivery pushed out beyond Christmas,\u201d Vena told TechNewsWorld.<\/p>\n

Although the iPhone 14 Pro and Max models may be hard to find, other Apple products don\u2019t seem to be affected. \u201cWe\u2019re seeing no supply chain problems with iPads, watches, or Macs,\u201d Bajarin said.<\/p>\n

That might change, however. \u201cToday, the problems affect the iPhone, but because 50% of Apple\u2019s revenues come from products produced or assembled in China, other products can be affected too,\u201d Munster observed.<\/p>\n

Earnings Call Qualms<\/h3>\n

Apple\u2019s concerns about potential production problems could be seen during its last earnings call when it declined to give explicit revenue guidance for the December quarter \u201cdue to macro uncertainty.\u201d<\/p>\n

\u201cApple\u2019s performance in any quarter is tied to the supply that they can access. To the extent that these problems will detract from production, they could have an impact on their financial results,\u201d Rubin explained.<\/p>\n

\u201cThe iPhone is the most important product they make from a revenue perspective,\u201d he continued. \u201cIn the past, when there have been supply-chain disruptions, they\u2019ve taken a hit to their revenue or claimed they could have performed even better had they been able to access or produce more product.\u201d<\/p>\n

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\u201cBut they also have a very strong track record compared to the industry of insuring good supply availability,\u201d he added.<\/p>\n

Bajarin noted that Apple is very concerned about what is happening in China and its impact on its supply chain. \u201cThey\u2019ve already taken strong measures to begin shifting parts of their supply chain out of China to India and elsewhere,\u201d he said.<\/p>\n

\u201cApple has been working with India for over 10 years, although it has only been over the last four years that India has changed some of its policies on foreign investment and foreign control that has allowed Apple to expand faster there,\u201d he continued.<\/p>\n

He added that Apple is also concerned with President Xi Jinping\u2019s overall vision for China, which is to be less open to outside markets and more controlled about inside markets, potentially impacting Apple in the long term.<\/p>\n

Apple Diversifying Supply Chain<\/h3>\n

Bajarin indicated that Apple has been working behind the scenes on a lot of different ways to diversify its supply chain.<\/p>\n

\u201cThey haven\u2019t stated how aggressive they\u2019re going to be, but we\u2019ve already seen the seeds of that, especially when you look at what they\u2019re doing in India,\u201d he said.<\/p>\n

There were signs of it in 2021, too, when Apple announced 150 new production locations \u2014 80% outside of China.<\/p>\n

\u201cI have to believe that Apple has a solid backup plan in the works that\u2019s going to allow them to speed up their detachment from China at least over the next couple of years,\u201d he added.<\/p>\n

A substantial overhaul, though, will take longer than a couple of years, maintained Munster. \u201cIt\u2019s a slow process. It\u2019ll take five to 10 years,\u201d he said. \u201cIt\u2019s a difficult supply chain to reconstruct in different countries.\u201d<\/p>\n

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Vena predicted that, eventually, 50% of Apple\u2019s production will be pushed outside China. \u201cTaiwan, in particular, is especially under scrutiny due to the threat of an invasion by China, which would be devastating if that occurred within the next 12 to 24 months,\u201d he said.<\/p>\n

Apple isn\u2019t alone in its desire to pare back production in China. \u201cAll electronics manufacturers that are heavily dependent on China have been diversifying,\u201d Rubin said. \u201cThe Covid restrictions have been a contributor, but there are a larger set of issues that include historical constraints on sales, requirements for technology sharing and reigning in of capitalism.\u201d<\/p>\n

Apple did not respond to a request for comment for this story.<\/em><\/p>\n<\/p><\/div>\n