Apple (AAPL) shares slumped lower Monday after the tech giant cautioned that covid restrictions at a key manufacturing plant in China would curtail shipments of its higher-end iPhones heading into the holiday season.
Apple said late Sunday that the 200,000-person factory in Zhengzhou, which is run by iPhone assembler Foxconn, is "currently operating at significantly reduced capacity" owing to covid restrictions put in place last week by officials in Beijing.
"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," the company said in a statement late Sunday.
Apple shares were marked 1.4% lower in mid-day Monday trading to change hands at $136.44 each, a move that would extend the stock's six-month decline to around 10.9%.
Foxconn, a key Apple assembler responsible for around 70% of the tech giant's iPhone shipments, said it is working with officials in the Chinese region of Henan as part of a "concerted effort to stamp out the pandemic and resume production to its full capacity as quickly as possible."
The group also said it would "revise down" its previously-issued forecast for December quarter sales, which it described as 'cautiously optimistic', but noted that October revenues rose nearly 41% from last year, the largest increase on record, ahead of its September quarter earnings release on November 10.
"We believe Apple has already taken some steps to de-risk its China supply chain challenges in the future, reportedly deepening its iPhone production in India, but those changes to a supply chain take time," said KeyBanc Capital Markets analyst Brandon Nispel, who said he will take a 'wait-and-see' approach before altering his December quarter iPhone sales estimate of $76.6 million. "We continue to believe iPhone demand, which we feel is being driven off of Apple's large and still growing user base, is relatively healthy."
Apple CEO Tim Cook said last month that iPhone demand has remained healthy, but noted that supply constraints for both the 14 Pro and the 14 Pro Max continued to persist heading into the key holiday season, even prior to the added restrictions at Zhengzhou.
iPhone revenues, in fact, were an important component of Apple's better-than-expected September quarter earnings, with sales rising 9.6% from last year to $42.62 billion.
Overall revenues, however, rose 2% from last year to an all-time high of $90.15 billion, helping Apple to a Street-beating fourth quarter earnings tally of $1.29 per share.
"We did better than we anticipated, in spite of the fact that foreign exchange was a significant negative for us," CFO Luca Maestri said, noting that December quarter sales would suffer a a 10 percentage point year-on-year impact from the surging U.S. dollar.
The world's biggest tech company also said holiday quarter revenues would slow from September levels, citing in part a 10 percentage point year-on-year impact from the surging U.S. dollar, which is trading near 20-year highs against its global peers.
