Covid Restrictions in China Hurting iPhone Production, Apple Warns

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Apple’s CEO Tim Cook has sent out an email to employees warning that rising trade tensions with China could have adverse effects on iPhone production, reports CNBC. In the email, dated Aug. 6, 2018, Cook advised employees to work closely with your managers to minimize the impact on morale and productivity in your work teams. He also warned that many of our critical suppliers have production facilities in the impacted region and may be adversely affected by the situation as well. This includes manufacturers of components such as displays and chips, and could potentially include Apple’s own manufacturing partners, according to CNBC.

The Covid-19 limits at Apple’s major iPhone 14 Pro and iPhone 14 Pro Max manufacturing factory in Zhengzhou, China, forced the company to temporarily decrease iPhone 14 output, according to a statement released on Sunday.

According to Apple, the Foxconn-run facility is working at “substantially reduced capacity.” It issued a warning that it would send fewer units and that consumers would have to wait longer to buy equipment.

In light of Apple’s warning, it is possible that it may sell fewer iPhones in the December quarter due to production issues. In the December quarter of last month, it had earlier indicated declining growth.

The impacted devices, which are more expensive than other iPhone models and start at $999 and $1099, are nevertheless in great demand, the company claimed.

China has mandated lockdowns in Zhengzhou, where Apple produces the majority of its iPhones, for the last week. According to Reuters, the firm in China has struggled with workers leaving the location due to its Covid regulations and outbreaks.

The “zero-Covid” policy, which China is still pursuing, mandates that factories like the one that makes the iPhone in Zhengzhou function as “closed loops,” where employees live alone in dormitories and produce goods away from the outside world.

According to a note published on Sunday by JPMorgan analyst Samik Chatterjee, the current lead time for an iPhone 14 Pro purchased directly from Apple’s website is 31 days, which is greater than the typical 2-day lead time for less costly iPhone models.

Chatterjee also estimated that if Apple doesn’t get back to full capacity before year’s end, it will miss out on 2 million units of production. If so, he wrote that we could see 2m fewer iPhones sold, which would hurt revenues.

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