UBS cuts iPhone production forecast by 16 million on Covid, demand issues

PRODUCTION of Apple’s latest iPhone model may fall 16 million units shy of expectations this year, as China’s zero-Covid policy roils its key China plant and entry-level models face weak demand, said investment bank UBS.

UBS analysts slashed their forecast for total iPhone 14 production to 76 million in the second half of 2022, from 92 million units previously. The latest estimate represents a 20 per cent fall from a year ago, and is one of the most bearish estimates about the current quarter. And uncertainty still hangs over China’s potential relaxation of its virus lockdown measures.

The analysts attributed the lower expectations to two factors.

Firstly, Foxconn, also known as Hon Hai Precision Industry, is facing manufacturing disruptions. It is maintaining closed-loop operations at its factory in Zhengzhou, China, which produces the vast majority of iPhone 14 Pro and Pro Max devices.

By restricting workers to their dorms and factory floor, Foxconn’s closed-loop approach minimises the number of other people workers come into contact with, in a bid to prevent Covid transmission. However, the arrangement has complicated efforts to make up for lost assembly time.

“It is important to monitor whether lengthening wait times for the iPhone 14 Pro/Pro Max affect demand,” UBS analysts led by Grace Chen said on Thursday (Dec 1). “The speed with which Apple and Hon Hai can resolve the challenges at Zhengzhou is key to 2022’s fourth-quarter and 2023’s first-quarter volume.”

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Local authorities lifted the lockdown that had affected the area, and the central government indicated a softening stance. The pace of China’s reopening is a closely-watched measure, and is likely to impact the speed with which Foxconn can recruit staff to replenish its workforce and fulfill orders.

The second factor highlighted by analysts was the softening demand for lower-end iPhone 14 models.

Challenges to iPhone Pro production could further pressure Apple’s business, as the premium phones have picked up the slack for slumping demand for the regular iPhone 14 models this year.

Bloomberg reported earlier this week that turmoil at Foxconn’s Zhengzhou plant would likely lead to a production shortfall of six million iPhone Pro units. Apple already lowered its production target of the new handsets this year to about 87 million units from an earlier projection of 90 million units.

The analysts said that Apple would likely ask assemblers like Pegatron and Luxshare Precision Industry, which typically focus on lower-end iPhone models, to produce more of the premium models to meet holiday-season demand. They added that if such a shift happens, Foxconn’s iPhone assembly share could fall to between 65 per cent and 70 per cent in 2023, down from 70 per cent to 75 per cent this year. BLOOMBERG