Apple’s biggest iPhone plant hit by coronavirus restrictions

Rob Waugh
Contributor
People wearing face masks walk in front of an Apple store at a shopping mall, in Beijing amid the coronavirus outbreak REUTERS/Carlos Garcia Rawlins

Apple’s biggest iPhone plant has been hit by restrictions placed on Chinese workers due to the coronavirus outbreak - as the tech company warned restrictions were hitting sales.

Shares of Apple fell 2% on Tuesday after the firm warned of lower sales in the current quarter due to the coronavirus outbreak pressuring its supply chain.

Apple supplier Foxconn’s factory at Zhengzhou in Henan province has partially resumed production, but faces difficulties due to quarantine restrictions.

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The huge plant, with 200,000 workers, put up a notice barring workers from outside the area, the FT reported.

The notice said: “In response to government epidemic control requirements to prioritise prevention and safely resume work, and at the same time improve the quality of our worker reception services.”

Authorities are concerned that returning workers could spread the virus, with local officials saying companies have to “strictly protect against the virus”.

Manufacturing plants in China that produce the iPhone and other electronics have begun to reopen, but they are ramping up more slowly than expected, Apple said on Monday. That will mean fewer iPhones available for sale.

One of the primary iPhone manufacturing facilities in China is operating at a 25% factory utilisation rate as many workers remain absent, Cowen analysts estimated.

"We believe utilisation rates will improve linearly over the next several weeks to circa 50% by mid-March and followed by a big improvement in late March to normal levels."

Apple shares tumbled at the news (Getty)

Brokerage Canaccord Genuity expects Apple to sell 38 million iPhone units during the current quarter, eight million less from its earlier estimate.

The drop in Apple's stock is set to wipe nearly $30 billion off its market capitalisation, just as it was inching closer to $1.5 trillion in value.

Several Wall Street brokerages dubbed Apple's update forecast as a “near-term headwind”, saying the company is performing strongly outside China and the launch of 5G phones later this year would further boost sales.

“We believe any material weakness in Apple shares as a result of the March 20 quarter revenue shortfall will prove to be a buying opportunity,” analysts at Piper Sandler wrote in a client note.

“The iPhone supply constraints in the current quarter could result in pent-up demand for future quarters.”

In late January, Apple had forecast $63 billion to $67 billion in revenue for the quarter ending in March. It did not provide a new revenue estimate or a profit forecast on Monday.