A Covid-19 outbreak in China will limit the availability of Apple's iPhone 14 Pro and Pro Max handsets this holiday season. Apple stock wavered on the news Monday.
The consumer electronics giant late Sunday said an iPhone assembly factory in Zhengzhou, China, is "operating at significantly reduced capacity" because of Covid restrictions. The Foxconn-owned factory is the company's primary assembly plant for the iPhone 14 Pro and Pro Max, it said.
"We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models," Apple said in a news release. "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 news is "an absolute gut punch for Apple in its most important holiday quarter," Wedbush Securities analyst Daniel Ives said in a note to clients. He estimated that the reduced production could cut Apple's iPhone sales by 3% this quarter.
Apple Stock Wavers On Warning
"If Zhengzhou remains at lower capacity the next few weeks, this would cause clear iPhone Pro shortages into the all-important Christmas time period, especially in the U.S.," Ives said.
On the positive note, the lower-than-expected iPhone sales will be the result of a supply shortage and not demand related, he said. Ives reiterated his outperform rating on Apple stock with a price target of 200.
On the stock market today, Apple stock initially fell on the news but ended the regular session up 0.4% to 138.92.
Apple stock has been consolidating for the past 10 months with a buy point of 183.04, according to IBD MarketSmith charts.
But Apple stock has a mediocre IBD Composite Rating of 69 out of 99, according to IBD Stock Checkup.
Sales Seen Declining In December Quarter
Foxconn's Zhenghou factory accounts for about 60% of Apple's iPhone assembly capacity, JPMorgan analyst Samik Chatterjee said. Apple's supply chain is hard hit because it lacks a second major contract manufacturing source for iPhones, he said in a note.
Still, Chatterjee maintained his overweight, or buy, rating on Apple stock with a price target of 200.
Wall Street's consensus estimate of 3% sales growth for Apple in the December quarter now looks too high, Barclays analyst Tim Long said in a note. He now expects the company's revenue to decline 2% year over year in the period.
Long kept his equal weight, or neutral, rating on Apple stock but cut his price target to 144 from 156.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
