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The Ratings Game: Apple can withstand production disruptions in China, analysts say

Apple Inc. manufacturer Foxconn Technology Group is pausing its Shenzhen, China, operations amid COVID-19 protocols in the city, but analysts aren’t yet sweating possible effects on Apple.

Foxconn
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-0.48%
,
also known as Hon Hai Precision Industry Co., said Sunday that it had “adjusted the production line to minimize the potential impact” on its operations. The company will take advantage of its “diversified production sites in China.”

See more: Apple supplier Foxconn shuts Shenzhen production amid COVID lockdown

Foxconn didn’t say how long it planned to halt operations in Shenzhen, though the city has mandated a broad lockdown until at least March 20. Analysts seemed confident about the ability of Apple
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-2.66%

and Foxconn to manage the disruptions—as long as they don’t drag on too long.

“Apple/Foxconn have the ability to relocate production to other areas in the short term provided that there is not a significantly higher duration of lockdown,” wrote Bank of America analyst Wamsi Mohan. “An increased period of shutdowns can cause ripple effects at other components that can create a shortfall in production.”

Piper Sandler’s Harsh Kumar cited a Bloomberg News report indicating that Foxconn does the bulk of its iPhone production in Zhengzhou, which isn’t subject to lockdown restrictions.

“With the March quarter typically being a lower seasonal quarter, we believe any impact on production from the Shenzhen facility could be transferred to other sites, leaving limited impact,” he wrote. Additionally, Kumar sees “sticky” demand for iPhones and expects that, were Apple to experience supply challenges, customers would be willing to wait until iPhone stock improved.

Evercore ISI’s Amit Daryanani also commented that March tends to represent a somewhat slower demand period for Apple, noting that “it has been estimated that Zhengzhou site can manufacture ~50 million iPhones/quarter (enough for a seasonally quiet timeframe).”

Apple shares declined 2.7% in Monday’s session. They’ve lost 13.6% over the past three months as the S&P 500
SPX,
-0.74%

has slipped about 10%.

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