iPhone supply disruptions China weigh on Apple, temporary headwind
JPMorgan on Monday cut Apple ‘s (AAPL) iPhone shipment forecast amid uncertainty over when production at a key assembly plant in China will fully resume, predicting revenue and earnings declines in the current quarter. But even with expected supply disruptions, the Club remains optimistic on Apple’s ability to make up production shortages in light of Beijing’s recent move to begin easing Covid-19 restrictions. Volumes of iPhones in Apple’s fiscal first-quarter should come in at roughly 74 million, down from a previous estimate of roughly 82 million, according to analysts at JPMorgan. As a result, the bank now expects total revenue to be $121 billion in the quarter ending in December, compared with initial expectations of $128 billion. Quarterly earnings-per-share should be $1.91 a share, down from a prior forecast of $2.14 a share, JPMorgan said. Apple’s “reliance on the Zhengzhou facility for iPhone production, in particular iPhone 14 Pro/ Pro Max production, implies that the headwinds to…F1Q23 revenue and earnings estimates are likely to be substantial,” the analysts wrote in a research note. Production at the world’s largest iPhone assembly facility, in Zhengzhou, China, was severely hampered this month after the Chinese government imposed new lockdowns following a fresh Covid outbreak. Apple said in a statement Nov. 6 that the factory was operating at “significantly reduced capacity.” Still, analysts at JPMorgan expect the shipment shortfall to be partially made up in Apple’s fiscal second quarter, aided by “limited to modest impact to consumer demand,” despite delivery delays. “The opportunity to address the shortfall in [fiscal Q2] might give long-term investors several attractive buying opportunities into the shares through to the year-end,” the analysts added. The Club take The production headwinds in China don’t shake our confidence in Apple. We maintain our long-term investment case of — own it, don’t trade it — for its consistently strong cash returns, in-demand ecosystem of products and services, and its overall leadership in hardware devices. At the same time, we’re interested in getting a clearer picture on when iPhone production in China could normalize. We see production snags as a temporary risk that could moderate once China ultimately abandons its zero-Covid policy. Supply-related demand destruction at Apple tends to be minimal. Apart from production challenges in China, Apple’s stock has been held back this year by macroeconomic pressures and foreign exchange headwinds, with shares down roughly 16% year-to-date. Apple’s stock climbed nearly 8% last week, as tech stocks surged on the back of weaker-than-expected inflation data for October. Shares were trading down 0.29% Monday afternoon, at $149.27 apiece. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Customers look at the iPhone13 smartphones at apple’s flagship store in Shanghai, China.
Xing Yun | Future Publishing | Getty Images
JPMorgan on Monday cut Apple‘s (AAPL) iPhone shipment forecast amid uncertainty over when production at a key assembly plant in China will fully resume, predicting revenue and earnings declines in the current quarter. But even with expected supply disruptions, the Club remains optimistic on Apple’s ability to make up production shortages in light of Beijing’s recent move to begin easing Covid-19 restrictions.
