Setback for Apple on iPhone 14

According to UBS, the Apple iPhone 14 generation may be 16 million units lower than expected this year.

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The Apple iPhone 14 generation may fall 16 million units short of expectations this year as China’s Covid Zero policy upends its main factory in Zhengzhou and demand for entry-level models is weak, according to UBS.

UBS analysts cut their forecast of total iPhone 14 production from 92 million units in the second half of 2022 to 76 million, a 20% drop from 2021. They attributed the lower expectations to both the production disruption Foxconn, also known as Hon Hai Precision Industry Co., and decreasing demand for cheaper iPhone 14 models. It is one of the most bearish estimates for the current quarter and comes at a time of uncertainty over China’s potential easing of virus lockdown measures.

“It is important to monitor whether longer wait times for the iPhone 14 Pro/Pro Max impact demand,” UBS analysts led by Grace Chen wrote in a Dec. 1 note. “The speed with which Apple and Hon Hai can solve the challenges in Zhengzhou is key to Q4 2022 and Q1 2023 volume.”

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Foxconn maintains a closed loop on the Zhengzhou campus, complicating efforts to make up for lost editing time. The closed-loop approach confines workers to their dormitories or the factory floor, minimizing the number of other people they come into contact with in hopes of containing the spread of the virus.

Local authorities have lifted the lockdown that had hit the area, and the central government has also signaled a softening stance. The pace of reopening in China is being closely monitored and will likely affect the speed at which Foxconn can recruit to supplement its workforce and fulfill orders.

Production challenges for the iPhone Pro could put further pressure on Apple’s business as its premium phones have fallen behind this year due to declining demand for the regular iPhone 14 models. The Foxconn facility in Zhengzhou produces the vast majority of iPhone 14 Pro and Pro Max devices.

Unrest at the Zhengzhou factory is likely to lead to a production shortfall of 6 million iPhone Pro units, Bloomberg reported earlier this week. Apple has lowered its production target for the new handsets this year to about 87 million units, up from an earlier forecast of 90 million.

It is likely that Apple assemblers such as Pegatron Corp. and Luxshare Precision Industry Co., which typically focus on lower-end iPhone models, could ask to produce more of the premium models to meet holiday season demand, UBS said. If such a shift happens, Foxconn’s iPhone assembly share could fall from 70% to 75% this year to 65% to 70% by 2023, the analysts added.

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