Apple expects to ship fewer premium iPhones due to China lockdowns

The abrupt move by the Chinese government last Wednesday to lock down the Zhengzhou area that includes a Hon Hai Precision Industry Co. iPhone assembly plant until November 9 is expected to further disrupt a factory already grappling with an on-site coronavirus outbreak, worker exodus and enforced quarantine.

Apple said the facility is operating at “significantly reduced capacity,” while Hon Hai, the main listed arm of Taiwan’s Foxconn Technology Group, noted in a separate statement that it’s lowering its fourth-quarter outlook to factor in the lockdown.

“Foxconn is now working with the government in concerted effort to stamp out the pandemic and resume production to its full capacity as quickly as possible,” the Taiwanese company said in a statement.

The local government has ordered people and vehicles off the streets except for medical or other essential reasons, a prohibition that threatens to cut off the flow of additional workers and components needed to ramp up production ahead of the holiday-season crush.

The disruption comes at a crucial time for Apple, which launched the iPhone 14 during an unprecedented slump in global electronics demand.

While faring better than other smartphone makers, it’s backed off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, Bloomberg has reported. Apple has reported better-than-expected results but warned of a holiday slowdown.

The measures may further compound the headaches Foxconn and Apple are already facing as iPhones’ sales slow in China. Apple, the world’s most valuable company, said last month it expects growth to decelerate in the current period. 

The Cupertino, California-based company didn’t provide a specific revenue forecast for the current quarter, continuing an approach it adopted at the start of the Covid-19 pandemic. But analysts estimate sales of about $128 billion, which would be an all-time record.

In the face of slowing growth, Apple has paused hiring for many jobs outside of research and development, an escalation of an existing plan to reduce budgets heading into next year, Bloomberg reported last week, citing people with knowledge of the matter.

Meanwhile, Foxconn’s plant continues to operate within a “closed loop,” or a self-contained bubble that limits contact with the outside world. That is keeping some production going.

Apple said on Sunday it is working closely with its supplier to return to “normal production levels while ensuring the health and safety of every worker.”