Reuters
Apple shares fell Monday after the tech behemoth said COVID-19 restrictions in China have led to a reduction of work on producing its latest iPhones, a warning that's arriving as the key holiday season approaches.
The stock fell by 2% to $135.56 in premarket trade with more than 1 million shares exchanged ahead of Wall Street's opening bell. The shares have tumbled 22% during 2022.
Shares pulled back after Apple on Sunday said its factory in Zhengzhou, China - a primary production site - is operating at "significantly reduced capacity" because of coronavirus restrictions at the plant.
"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," Apple said in a statement. The company in the statement didn't specify how much output would be impacted.
"After battling the macro headwinds and delivering a strong September quarter/guidance in a stark contrast to the rest of Big Tech, this latest zero-Covid situation is an absolute gut punch for Apple in its most important holiday quarter," Wedbush analyst Dan Ives wrote in a note early Monday.
"With demand remaining firm into holiday season, we would estimate this negatively impacting roughly 3% of iPhone sales this quarter based on impacted China production/supply issues. 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 US," said Ives. Wedbush kept its outperform rating and its $200 price target on Apple.
Separately, Bloomberg reported Monday that Apple expects to produce at least 3 million fewer iPhone 14 handsets than it had anticipated this year, according to people familiar with the company's plans. The reduction primarily stems from softer demand for the iPhone 14 and 14 Plus models which are less expensive than the high-end Pro models.
Apple and its suppliers were aiming to make 87 million devices or fewer, compared with a previous target of 90 million units, the report said.
There's been speculation in the markets recently that China is preparing to step back from its zero-COVID policy that has placed businesses and millions of Chinese residents under lockdown to curb infections. But a health official in China on Saturday reiterated the country's commitment to the policy, according to CNN.
"Practice has proved that our pandemic prevention and control policy and a series of strategic measures are completely correct, and the most economical and effective," Hu Xiang, a disease control official, said at a press conference when asked if China would adjust its COVID policies in the near term, CNN reported.
