Thursday, November 3, 2022
Zhengzhou, the capital of China’s Henan Province, was hit with a wave of COVID-19 outbreaks in the middle of October. The spread of the disease eventually reached Foxconn’s manufacturing base, where the number of infections rose significantly late in the month. This event has thus directly affected the performances of the iPhone production lines that are deployed within the base.
In its latest investigation of this event, TrendForce finds that the capacity utilization rates of the iPhone production lines have climbed back to around 70% as the local outbreaks are being gradually brought under control.
However, returning their capacity utilization rates to the normal level will still be difficult in the short term. The Zhengzhou base is Foxconn’s main production hub for the iPhone Pro and Pro Max models. Furthermore, the flow of orders for the Pro series is now at its peak. Hence, iPhone shipments will be lower than expected for the fourth quarter (4Q22). Originally, the fourth-quarter iPhone shipment target was set at 80 million units. Due to the drop in the capacity utilization rates of the production lines in Zhengzhou, the quarterly total iPhone shipments is now projected to drop by 2~3 million units. As for this year’s total iPhone shipments, they are now targeted around 237 million units.
Looking ahead to 1Q23, the economic outlook for the period is already quite pessimistic. Moreover, the winter season is generally conducive to the spread of diseases such as COVID-19. Hence, there is a possibility that China could enact zero-COVID lockdowns at a more frequent pace in the future.
Such scenario would extend the effects of this policy to the demand side and disrupt Apple’s iPhone production plan for that quarter. TrendForce’s research finds that China’s domestic demand accounts for around 20% of the overall iPhone sales. Assuming that the future performance of the global economy is not particularly positive, the effects of China’s ongoing “Dynamic Zero-COVID Policy” on the supply and demand sides will likely cause a downward correction to the quarterly iPhone shipment target.
Currently, iPhone shipments are forecasted to reach 52 million units for 1Q23. However, TrendForce is not ruling out a downward correction of 4~6 million units. Furthermore, the YoY decline in iPhone shipments for 1Q23 could be widened further to more than 20%.
TrendForce’s investigation also indicates that Foxconn’s production of the Pro and Pro Max models will continue to exclusively take pace at the Zhengzhou base in the short term. However, Apple is planning to spread the production-related risks for the iPhone Pro series by diverting orders to Luxshare and Pegatron.
Luxshare is expected to first benefit from the subsequent order transfer, and shipments of the iPhones made at its production lines may start as early as 1Q23. Even though the demand for iPhones will be much weaker during that period, spreading out orders will help Apple in its plan to take on other EMS providers for the next iPhone Pro series and lower the risk of relying too much on one production site to manufacture certain device models.
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