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Key points to remember
- Apple shares fell on Nov. 28 on news of production issues at Foxconn’s factory in Zhengzhou, China.
- The company declined to comment on the Bloomberg report that there will be a production shortage of six million iPhone Pro models.
- Uncertainty remains over whether Apple can return to full capacity at the Foxconn factory as unrest continues to grow in China.
While many parts of the world have abandoned pandemic-related restrictions, China is still struggling in this area. The situation in China has turned violent, with protests across the country in response to the shutdowns.
These protests and other lockdown-related issues have led to production issues at the Foxconn factory in Zhengzhou, China, where Apple produces iPhones.
Apple has encountered some difficulties when it comes to the production of iPhones. Reports indicate that there could be a shortage of six million iPhone Pro units due to ongoing issues. The news sent Apple shares plummeting as concerns about falling earnings sparked concerns.
Let’s look at the situation with Apple in China and what that means for Apple stocks.
Production delays for new iPhones in China
Foxconn, a Chinese iPhone supplier, has been experiencing production problems since workers had a dispute with management over late payments. This caused production slowdowns.
COVID-19 lockdowns in the region have also impacted workers and production. Foxconn is located in Zhengzhou, which has been locked down as the country aims for a zero COVID policy.
Analysts predict that these production issues could lead to a 5-10% drop in production, which would be terrible news at this time of year. Bloomberg reported that production issues could lead to a shortage of up to six million iPhone Pro units.
Although Apple declined to comment on this report, the news was enough to send the stock plummeting.
What makes matters worse is that some of the reports out of China are horrific, with stories of Foxconn employees protesting food shortages, payment issues and complaints about how the company handles COVID-19 outbreaks.
There have been reports that workers have started smashing cameras and windows during the protests. These violent protests could continue if the situation is not immediately resolved in the country, leading to increased uncertainty as to how Apple will respond to the request.
Moreover, there are fears that the demand for the new premium iPhone product will drop as consumers may not want to wait for an indefinite period to get their hands on the new gadget.
When will the production delays be resolved?
The only troubling aspect of Apple’s production problems in China is that there doesn’t seem to be a solution in sight.
While reports vary on the severity of the infections, disturbing news has emerged regarding the violent protests against the closures. The shocking and unprecedented protests have affected the whole country.
Apple’s situation is unique as it relies on its partner Foxconn Technology Group, a Taiwanese group that manages the facility, to ensure that production meets targets. If violent protests and lockdowns continue, production could be slowed even more than expected.
With more than 200,000 workers on site, Foxconn accounts for 70% of global iPhone shipments.
In a surprising move, Apple released a statement in early November warning of production issues. The Zhengzhou factory mainly produces the iPhone 14 Pro and iPhone 14 Pro Max models, which are high-margin products for the company.
It should be noted that this press release was issued before news broke of the violent protests in response to the lockdown restrictions. Apple CEO Tim Cook did not comment when asked about his reactions to the protests in China.
Additionally, Apple has already started moving production to India as the company realizes that weakening relations between China and the United States will present potential political challenges.
Analysts have reported that Apple will shift around 5% of global iPhone 14 production to India by the end of 2022. They are also expected to increase manufacturing in India to produce 25% of all iPhones in 2025. We’ll see how that plays out. since Apple is still heavily dependent on China.
finance
With all of these production issues worrying investors, we need to take a step back to look at Apple’s finances to see how the company is doing.
With a market capitalization of $2.33 trillion, Apple is still the largest publicly traded company in the world. They also have $169 billion in cash on the balance sheet, so there aren’t many concerns about the company’s finances.
However, these production issues have caused analysts to note how heavily Apple depends on iPhone sales for its revenue. The iPhone accounted for 52% of Apple’s revenue in fiscal year 2022.
Should Apple continue to rely primarily on suppliers in China, it could become vulnerable if the political situation does not improve or if it does not shift production.
After a stressful week for Apple, it was reported on Dec. 2 that the company may miss expectations of 16 million units in 2022 due to ongoing issues with China’s COVID zero stance.
Analysts cut their iPhone 14 production forecast from 92 million units to 76 million units for the second half of the year, which would represent a 20% drop from the previous year.
This Foxconn situation is even more critical for Apple as the company could be hit since premium versions of the new iPhone resumed for soft sales of the standard iPhone 14 model.
Since the Foxconn factory produces most of the high-end iPhone 14 models, this could become a bigger story until 2023.
Many consumers opted for the premium version, with the iPhone 14 Pro model costing just $100 more than the iPhone 14 Plus. This led Apple to cut production of the iPhone 14 product, which was just released on October 7.
What’s going on with Apple stocks?
As of the Dec. 2 close, Apple stock was at $147.81, down 18.79% year-to-date. Apple stock fell 2.6% on November 28 when it became clear that production issues in China could pose a serious threat to shipping.
Apple stock has a 52-week high of $182.94 and a low of $129.04.
However, Apple announced record revenue on October 27 for the fourth fiscal quarter of 2022. The company posted record quarterly revenue of $90.1 billion during a difficult period in the economy where l There are fears that rate hikes could lead to a full-scale recession.
Annual revenue increased 8% year over year to $394.3 billion. What has made these financial results even more impressive is the current macroeconomic environment, where high inflation is causing people to think twice before spending on expensive discretionary items.
How should you invest?
As we’ve all seen throughout 2022, supply chain issues and soaring inflation have hurt many businesses. Many large retailers reported lower earnings due to current macroeconomic challenges.
This makes it even more difficult to know how to invest your money. If the largest company in the world by market capitalization can face supply chain challenges, it shows that no one is immune.
For a simpler approach, you can check out Q.ai’s Inflation Kit or Emerging Technology Kit. Q.ai takes the guesswork out of investing by using artificial intelligence to scour the market for the best investments for all risk tolerances and economic situations.
Then, it bundles them into investment kits that make investing easier and more strategic. You can activate portfolio protection at any time to protect your gains and reduce your losses, regardless of the sector in which you invest.
Conclusion
We will continue to monitor the situation with Apple and production issues in China. If the issue isn’t resolved soon, delivering the premium iPhone 14 models in time for the holiday season could pose other problems.
With consumers already bracing for a possible recession due to stubborn inflation numbers and persistent rate hikes, there is a lot of uncertainty in the markets.
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