Image Source: https://img.caixin.com/2019-04-22/1555935062859236.jpg
Hon Hai Precision Industry Co. reported November sales were down 11.4% year on year due to a Covid outbreak in the Chinese city of Zhengzhou, where the company operates the world’s largest iPhone assembly complex.
The company, also known as Foxconn, stated that the pandemic had the greatest impact in November and that it expects the fourth quarter to be “roughly in line with market consensus.” The Covid outbreak resulted in government lockdowns, a worker exodus, and violent protests at the factory.
The Zhengzhou campus in central China manufactures the majority of the world’s iPhone Pro handsets, making it critical to Apple Inc.’s ability to meet the demand for the latest generation. Apple has stated that it expects deliveries to be delayed this year due to disruption, and analysts have issued a series of increasingly pessimistic forecasts for shipment shortfalls this year. According to UBS, the entire iPhone 14 generation may fall short of previous expectations by 16 million units.
Hon Hai shares fell up to 2.4% in Taiwan trading on Tuesday, the biggest intraday drop since October, while Apple’s stock fell less than 1%.
Foxconn said the situation has been “brought under control” and that production will improve throughout the rest of the year.
“In addition to reallocating production capacity across factories, we have begun to recruit new employees and are gradually moving toward the direction of restoring normal production capacity,” Foxconn said in a statement.
China is rolling back Covid restrictions in some cities, including Zhengzhou, where authorities announced on Sunday that mandatory Covid testing for those entering buses, subways, taxis, and other public venues, other than those leaving the city or going to karaoke bars and internet cafes, would be discontinued immediately. According to a notice posted on WeChat, Foxconn is continuing with closed-loop operations, limiting workers’ movements to their dormitories and the factory.
“China’s relaxation of Covid-Zero policy may help lift Hon Hai’s December sales, paving the way for it to meet or even exceed 4Q guidance,” said Bloomberg Intelligence analysts Steven Tseng and Sean Chen in a note Monday.
