apple china iphone production

Apple stock (NYSE: AAPL) is trading lower in US premarkets today. Along with the market sell-off, reports of massive iPhone production loss due to the COVID-19 outbreak at Foxconn’s factory in Zhengzhou is taking a toll on AAPL stock.

Foxconn has reportedly lost production to 6 million iPhone units due to the COVID-19 restrictions and the resultant unrest at the Zhengzhou plant. Notably, several buyers in the US were not able to buy iPhone 14 during the Cyber Week sale.

Overall, online sales surged on the weekend defying slowdown blues. Sales of smartphones were a bright spot as well. Smartphone sales accounted for 55% of total online sales on Thanksgiving Day. The metric looks encouraging as sales of both PCs and smartphones have plummeted this year.

Coming back to Apple’s production woes in China, the company had warned about the same earlier this month only. It said, “COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China. The facility is currently operating at significantly reduced capacity.”

Meanwhile, things seem to be getting worse in China which still continues with its zero-COVID policy. Images of clashes between police and Chinese citizens including at Foxconn’s factory in Zhengzhou are being circulated across the globe.

Such protests are pretty unheard of in China, especially under the leadership of Xi Jinping who has further tightened state control.

Oil prices have also fallen casualty of the lockdowns in China and have fallen to their lowest level of the year. There has meanwhile been a divergence in the price action of oil prices and energy stocks and the latter have looked strong despite the fall in oil prices.

Apple Stock Falls on Reports of Massive iPhone Production Loss

Apple stock, which is still the best-performing FAANG stock of 2022 by a reasonable margin, is trading lower today on reports of iPhone 14 production woes.

The company posted iPhone revenues of $42.63 billion in the September quarter. While revenues rose 9.67% YoY, they fell short of $43.21 billion that analysts were expecting. Nonetheless, iPhone sales are the lone bright star in an otherwise dismal global smartphone market.

Global smartphone shipments fell by double digits in the third quarter. The Chinese market has been particularly weak as the world’s second-largest economy is battling slowing growth amid intermittent COVID-19 lockdowns.

Apple said that it had 900 million paid subscribers across platforms at the end of the fiscal fourth quarter and it added 155 million subscribers in the last year alone. Warren Buffett has also loaded up AAPL shares this year, adding to Berkshire Hathaway’s already humongous position. We have a guide on how to buy Apple stock.

China’s COVID-19 Blues Are a Double Whammy for Apple

China’s COVID-19 blues are a double whammy for Apple. The fall in iPhone production in China could hurt the company’s sales during the holiday season and some signs are already visible during the Thanksgiving sale.

For the long term, Apple is trying to diversify its sourcing away from China. India is offering incentives to electronics manufacturers as the country seeks to capitalize on the “China plus one” sourcing strategy that many US companies are contemplating.

Indian stocks are also outperforming global markets amid a strong domestic economy this year. We have a guide on how beginners can buy stocks in India with a regulated broker.

The slowdown in the Chinese economy, which has been aggravated due to the COVID-19 restrictions, is another challenge for Apple as the country is among its major markets. While China is still officially targeting a GDP growth of 5.5% for 2022, it looks unlikely to reach anywhere near that level considering the growth in the first nine months of 2022.

Chinese GDP Growth Has Sagged in 2022

Notably, Shaun Rein, founder of China Market Research Group, who has long been a China bull is also apprehensive about Chinese stocks as well as the economy for the short term. The country largely dodged the economic slump from the COVID-19 pandemic in 2020 and 2021 even as the virus allegedly originated in the country.

Fast forward to 2022, and while the rest of the world has learned to live with coronavirus, China is facing disruptions. Along with the Chinese economy that’s bad news for companies like Apple which not only count the country as a major market but also the key sourcing hub.

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