Peter Cohen
Analyst Ming-Chi Kuo said that Apple's shipments of iPhones in China declined more than he expected.
Kuo linked some of the downturn to Foxconn's Zhenghzhou factory, which is used to produce iPhones. That factory was the site of a labor riot in 2022. Hundreds of Foxconn workers protested over wages and labor conditions at the factory.
The riots were linked to the company's alleged decision to delay bonus payments, along with issues related to repeated COVID-associated lockdowns. Workers complained that China and Foxconn's "closed-loop production" health measures were ineffective.
Those anti-COVID measures affected Foxconn's earnings, though Chinese authorities quickly re-opened the plant following the riots. Analysts called the shutdown "an absolute gut-punch to Apple's supply chain."
Kuo said that the resulting disruption caused Foxconn to ship "12 million fewer iPhone 14 Pro & Pro Max units, resulting in a lower revenue baseline for 4Q22."
Regardless, Apple predicted its fourth-quarter 2023 revenue to be similar to the same quarter a year ago. Instead, the company posted a decline, reporting $89.5 billion compared to $90.1 billion for Q4 2022.
This suggests "that Apple's 4Q23 momentum is weaker than expected, primarily due to a decline in iPhone demand in the Chinese market," said Kuo.
The analyst anticipates a continued "downward trend for the iPhone in China" for 2024, which he attributes to "a structural change in the Chinese smartphone market due to Huawei's return."
Apple faces increased competition from Chinese smartphone handset makers including Huawei and Honor, according to recent analysis from Counterpoint Research.
Research first emerged in October suggesting that demand in China for the iPhone 15 was weaker than the iPhone 14. This came despite initial rosy sales figures for the iPhone, which was released at the end of the third calendar quarter.
Counterpoint and Jeffries both pointed to lower than anticipated iPhone 15 sales, citing increased competition from Huawei and its release of the Mate 60 Pro, along with a China economy that's struggling in the wake of COVID.
"The trend suggests iPhone would lose to Huawei in 2024," wrote Jefferies analysts. "We believe weak demand in China would eventually lead to lower-than-expected global shipments of iPhone."
Wesley Hilliard
Christine McKee
Malcolm Owen
Amber Neely
William Gallagher
2 Comments
The disruption would have affected 1Q23 — not 4Q22. Apple projected revenue in line with the year ago quarter, which was spot on. They also said they had record sales in China for 4Q23. As for 1Q24, keep in mind that they have 1 less week in the quarter than for 1Q23.
Kuo and others are trying to make too much out of Huawei and other Chinese companies, and they forget about lock in and the fact that only iPhone runs iOS. Everything is else in Android based, which isn’t an option if that isn’t your cup of tea.
A difference of $600 million is a lot of money in raw figures, but the difference in percentage terms on the YoY revenues is less than 1%. I'd argue that counts as "similar."