Apple iPhone Delivery Delays
In June we noted that Foxconn (2354.TT) had been offering aggressive bonuses to workers at its Zhengzhou assembly plant known as “iPhone City”, where it employs over 200,000 to assemble iPhones and similar Apple (AAPL) products. The incentives were offered to assuage worker fears that COVID restrictions might keep them at the plant for an extended period of time and limit their ability to travel to their homes when not working. Last week we noted that the Zhengzhou government had done just as the worker’s feared and locked down the city, with many workers having anticipated the move and left the plant days earlier. Foxconn provides for the workers that remain on campus with dormitories, food, and a few stores, but communal meals and other typical amenities are restricted.
Early indications pointed to Foxconn’s ability to transfer some of the Zhengzhou workflow to its assembly plant in Shenzhen, which faced its own closings in March and July, but was still operating at normal capacity. In our note last week we calculated that while the issues in Zhengzhou could push out delivery times, they would not substantially impact 4th quarter iPhone shipments, though in worst case could push some sales into 1Q ‘23. It seems that we were wrong as Apple made the following announcement this morning:
“We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models. However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products.”
While we expect there might be a bit of the general economic macro malaise built into that statement, it seems more workers than expected anticipated the lockdown and took off before the restrictions began, leaving the factory at lower capacity than we had expected. Apple did not give specific targets for 4Q iPhone shipments, but street expectations seem to be concentrated between 50m and 55m units for this year. Apple’s previously had an optimistic view of iPhone shipments, as in June the company was said to have increased orders for iPhone components from suppliers by 5%, and during the pre-order period that started September 9, early pre-orders, especially for the iPhone 14 Pro and Pro Max, were said to be ahead of the corresponding iPhone 13 models released last year. With this morning’s iPhone statement and what is likely another week+ of lockdown in Zhengzhou, the lockdown seems to be having a greater impact than we originally thought. Our estimation of an 11.2m unit shortfall seemed high at the time and a bit extreme, but today’s comments from Apple make it less so.
Early indications pointed to Foxconn’s ability to transfer some of the Zhengzhou workflow to its assembly plant in Shenzhen, which faced its own closings in March and July, but was still operating at normal capacity. In our note last week we calculated that while the issues in Zhengzhou could push out delivery times, they would not substantially impact 4th quarter iPhone shipments, though in worst case could push some sales into 1Q ‘23. It seems that we were wrong as Apple made the following announcement this morning:
“We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models. However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products.”
While we expect there might be a bit of the general economic macro malaise built into that statement, it seems more workers than expected anticipated the lockdown and took off before the restrictions began, leaving the factory at lower capacity than we had expected. Apple did not give specific targets for 4Q iPhone shipments, but street expectations seem to be concentrated between 50m and 55m units for this year. Apple’s previously had an optimistic view of iPhone shipments, as in June the company was said to have increased orders for iPhone components from suppliers by 5%, and during the pre-order period that started September 9, early pre-orders, especially for the iPhone 14 Pro and Pro Max, were said to be ahead of the corresponding iPhone 13 models released last year. With this morning’s iPhone statement and what is likely another week+ of lockdown in Zhengzhou, the lockdown seems to be having a greater impact than we originally thought. Our estimation of an 11.2m unit shortfall seemed high at the time and a bit extreme, but today’s comments from Apple make it less so.
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