The Ratings Game: Apple stock dips amid questions about iPhone production disruptions at Foxconn

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Apple Inc. continues to be dogged by concerns about the pandemic’s impact on production after recent reports indicated that strict COVID-19 restrictions in China were affecting Foxconn, which manufactures iPhones.

Reuters reported Monday morning that Hon Hai Precision Industry Co Ltd., which is better known as Foxconn 2354, -0.77%, had seen some workers leave its Zhengzhou plant over the weekend amid dissatisfaction about COVID-19 measures. The report also cited one person “with direct knowledge of the matter” who said that iPhone production could fall by as much as 30% next month as a result of pandemic restrictions in the country.

Apple shares AAPL, -1.54% were off 1.5% in Monday trading.

Foxconn said in a statement that its “Zhengzhou park operation, in coordination with the government’s epidemic prevention, is gradually coming under control.” Foxconn “will also coordinate backup production capacity with our other parks to reduce any potential impact.”

Apple didn’t immediately respond to MarketWatch’s request for comment on the production disruptions.

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Analysts were split on how much the issues could affect Apple, with Mizuho desk-based analyst Jordan Klein, who’s associated with the company’s sales team and not its research arm, writing that production hiccups create some risk that Apple will see undersupply in the December quarter and then oversupply in the March quarter.

“In sum, we see neutral impact over medium term,” since “all that really matters is true end demand,” Klein wrote. “If anything, I view this as a POSITIVE as tight supply limits risk AAPL slows production in Dec qtr, and demand push into Mar offers a buffer on seasonal slowdown.”

Barclays analyst Tim Long was more pessimistic.

“We did some channel checks in local language with our contacts in China over the weekend,” he wrote. “We came away incrementally negative on the prospect for AAPL to meet consensus estimates for Dec-Q, even though they just reported last week.”

Given the Zhengzhou plant’s outsized importance to iPhone production, particularly of Pro models, Long said that the COVID outbreak “again highlights a key, yet often overlooked, risk for AAPL: there is manufacturing concentration risk in China.”

He rates Apple’s stock at equal weight with a $156 price target.

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This article was originally published by Marketwatch.com. Read the original article here.

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