Apple expects to produce at least three million fewer iPhone 14 handsets than originally anticipated this year, according to people familiar with its plans.
The company and its suppliers now aim to make 87 million devices or fewer, compared to a target of 90 million units earlier, the people said, asking not to be named discussing private information. The reduction is primarily due to softer demand for the iPhone 14 and 14 Plus models, cheaper alternatives to the high-end Pro offerings. That comes in addition to supply problems in places like Zhengzhou, which is home to the main iPhone assembly site and is under a weeklong Covid-19 lockdown.
Sales of the iPhone 14 and Plus have rapidly cooled since their launch and the slowdown is deepening in China, according to a Jefferies analysis of the world’s biggest smartphone market. Apple previously cancelled plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialise.
Still, Apple said on Sunday that demand for its iPhone 14 Pro and Pro Max devices remains strong, though production of those handsets will be clipped by the lockdown in Zhengzhou. It declined to provide specific figures.
SMBC Nikko analysts led by Ryosuke Katsura on Friday lowered their overall forecast for Apple’s 2022 output to 85 million new iPhones from 91 million units. Their revised forecast actually raises expected production of iPhone Pro models but cuts the standard editions by a bigger margin.
“Some firms have begun to factor in the potential impact of these changes in their earnings outlooks,” Katsura and colleagues wrote. They revised their outlook after “confirmation this week of production and sales corrections in China and emerging signs of production cutbacks at some materials makers”.
Apple declined to comment beyond a statement earlier about supply from Zhengzhou.
iPhone City
The Zhengzhou facility, operated by Foxconn Technology Group and also known as iPhone City, is Apple’s main production hub for assembling Pro editions of its iPhones. It’s been the site of worker dissatisfaction and an exodus over the way Foxconn managed a coronavirus outbreak at the plant. The Taiwanese assembler has raised wages and put additional measures in place to improve worker welfare, which Apple has said is its top priority.
The Chinese government’s lockdown of Zhengzhou, effective for a week until 9 November, followed and now Foxconn says it’s working closely with the government to stamp out the pandemic and minimise the disruption.
Hon Hai Precision Industry, Foxconn’s main listed unit, has traded relatively flat over the past week while Apple’s shares are on a five-day losing streak amid wider scepticism about the prospects for tech and consumer businesses.
Read: Apple steps up production shift from China to India
Apple’s bigger problem in the coming weeks may be the slump in iPhone demand rather than supply. China’s rigid Covid Zero policy has led to sudden lockdowns across the country, stymieing economic activity. Daily Covid-19 cases just hit a six-month high, leading officials to declare that the nation will stick to its strict virus controls. — Debby Wu and Takashi Mochizuki, with Mark Gurman, (c) 2022 Bloomberg LP
