Hon Hai Precision Industry Co. reported sales for November were down 11.4% from the prior year after some shipments were affected by 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, said November was the most affected period by the pandemic and it expects the fourth quarter to be “roughly in line with market consensus.” The Covid outbreak led to government lockdowns, a worker exodus and violent protests at the manufacturing facility.
The Zhengzhou campus in central China is where the bulk of the world’s iPhone Pro handsets are assembled, making it critical to Apple Inc.’s ability to satisfy demand for the latest generation. Apple has said it expects deliveries to be delayed this year because of disruption, and analysts have offered a series of increasingly downbeat forecasts for the shortfall in shipments this year. UBS this month said the entire iPhone 14 generation may fall short of earlier expectations by 16 million units.
Hon Hai shares slid as much as 2.4% in Taiwan trading on Tuesday, the biggest intraday decline since October, while Apple’s stock dropped less than 1% in the US.
Foxconn offered reassurances that the situation has been “brought under control” and that its production will improve through the rest of the year.
“In addition to reallocating production capacity of different factories, we have also started to recruit new employees, and are gradually moving toward the direction of restoring production capacity to normal,” Foxconn said in the statement.
China is rolling back Covid restrictions in some cities, including Zhengzhou, where authorities announced on Sunday the immediate end of mandatory Covid testing to enter buses, subway, taxis and other public venues besides for those who depart from the city or go to karaoke bars and internet cafes. Foxconn is continuing with closed loop operations, restricting workers’ movements to their dormitories and the factory, according to a notice posted on WeChat.
“China’s easing of Covid-Zero policy might help lift Hon Hai’s December sales, paving the way for it to meet or even beat 4Q guidance,” Bloomberg Intelligence analysts Steven Tseng and Sean Chen said in a note Monday.
© 2022 Bloomberg L.P.
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