Apple stock must navigate 'brutal' iPhone supply shortages as China factory protests may cut production by up to 10%, Wedbush says
- "Brutal" iPhone supply shortages at Apple are a near-term overhang for the stock, according to Wedbush.
- Wedbush estimates up to a 10% hit in iPhone production depending on protests in China at key production facilities.
Apple faces up to a potential 10% hit in iPhone production stemming from protests at a key factory in China, posing a near-term challenge for the stock as the company tries to meet firm demand for its mobile phones, Wedbush said Monday.
Apple shares fell 2.6% to close at $144.22 after Bloomberg reported the company faces a shortfall of nearly 6 million iPhone Pros this year as protests against China's zero-COVID policy have accelerated in the country. The report cited a person familiar with assembly operations.
In recent days, hundreds of workers have clashed with security guards at the largest iPhone production plant in China over strict coronavirus measures at the factory. Foxconn, the company that makes iPhones for Apple, runs the factory.
"We estimate that Apple now has significant iPhone shortages that could take off roughly at least 5% of units in the quarter and potentially up to 10% depending on the next few weeks in China around Foxconn production and protests," wrote Wedbush analyst Dan Ives in a note reiterating its $200 price target and outperform rating on Apple.
"In many Apple stores we are seeing major iPhone 14 Pro shortages of up to 35%/40% of typical inventory heading into December with online channels pushing deliveries into early January in many cases depending on model/storage/color," he wrote.
Apple lowered its iPhone 14 production forecast by 3 million to 87 million because of softer demand, Bloomberg reported earlier this month.
Ives said its view on the demand story is unchanged, with robust iPhone demand outstripping supply by roughly 3:1 heading into the holiday season despite a softer macroeconomic backdrop.
"Now it's the painful waiting game to see what ramped production looks like over the next week for Apple to ease some iPhone shortages that are building globally," he wrote. "Our bullish thesis on Apple is demand driven which is very firm, although these brutal supply shortages in the near-term remain a clear overhang for the stock to navigate."
Apple shares have lost nearly 19% during 2022 compared with the S&P 500's loss of almost 17%. The tech-concentrated Nasdaq Composite has dropped 29% this year and Apple is the most heavily weighted stock on that index, at nearly 13%.
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