Pro iPhones aren’t getting easier to get, unrest in iPhone City and actual cities in China, and St. Louis gives togetherness the slip.
Wedbush: iPhone 14 Pro Supply Worsens Heading Into Holidays
Just before the Thanksgiving holiday, we heard a warning from Best Buy that that retailer was running out of units in the iPhone 14 Pro line. Apple — of course — ran out in the middle of the month, assuming you want one by Christmas. Now, Wedbush analyst Daniel Ives says, yeah… iPhone 14 Pro models are hard to find. Apple 3.0 ran part of a note he wrote after a bit of Black Friday poking around. Quoting a couple of parts of his note:
…we believe iPhone 14 Pro shortages have gotten much worse over the last week with very low inventories across the board seen [on Black Friday]. We believe many Apple Stores now have iPhone 14 Pro shortages based on model/color/storage of up to 25%-30% below normal heading into a typical December, which is not a good sign heading into holiday season for Cupertino.
Despite the softer economic climate we are seeing strong iPhone upgrade activity through the likes of AT&T/Verizon and in store activity has been solid for Apple in most stores as well as the online channels. That said, inventory is the issue as many storage options and colors are limited today and heading towards a major demand/supply imbalance of iPhone 14 Pro models over the next month.
Not surprisingly, he blames China’s zero-Covid policy. Production stoppages there could lead to a 5% hit on iPhone sales this quarter, in his estimation. He’s still into Apple, though. Quoting his note again:
While not the news any bull wants to hear from Apple, its a supply issue and related to China’s zero Covid policy which is a very frustrating situation for Apple (and its investors) yet again, but not demand driven.
Mr. Ives maintains his “Outperform” rating on Apple shares. He’s also sticking with his price target of $200.
Evercore: ~$6B Hit to iPhone Sales Likely ‘Deferred vs. Lost’
Mr. Ives’ call for a 5% hit to iPhone sales this quarter doesn’t sound that bad. I’m pretty sure it is though, and that numbers are funny things. In another note published by Apple 3.0, Evercore analyst Amit Daryanani states the sales hit for the December-quarter in dollar amounts, not percentages. He had been looking for a hit of roughly $3B. With waits for the Pro phones standing at between 37-42 days, he’s upped the sales miss to roughly $6B.
See what I mean? 5% sounds way better than $6B when talking about a swing and a miss.
Not unlike his counterpart at Wedbush, Evercore’s Daryanani points to this being a supply issue, not one of demand, noting that “demand has remained strong and in stark contrast to concerns around a slowdown.” Also, at least some of these missed sales will be made at some point. Quoting his note:
Given the consistently strong demand for the iPhone 14 Pro/Pro Max and the stickiness of the AAPL eco-system, we continue to view this as revenue deferred vs. lost. Higher sales of the Pro models will likely have a notably positive effect on both mix/margins.
Mr. Daryanani has an “Outperform” rating on Apple shares. His price target on the shares is $190.
Unrest in iPhone City and Actual Cities in China
Getting Foxconn’s iPhone City plant in Zhengzhou back to rights has not gone swimmingly. After the early-November COVID related lockdown, Foxconn and the Chinese government tried a few things to get the lines humming, from recruiting army veterans to promising big bonuses.
Probably would have been cool if they’d paid those as well. A piece from The Mac Observer says riots and protests broke out overnight last Wednesday:
…with workers complaining about unpaid wages and bonuses, as well as fears of spreading infection. The report said several workers were injured and anti-riot police arrived on the scene to restore order.
It took about 24-hours, but Foxconn did eventually respond to the complaints — with an apology. A piece last Thursday from AppleInsider had the contract manufacturer and Apple’s iPhone-making partner blaming a “technical error” for the lack of payment. They’ve also said that all promised money will be paid. One worker cited in a BBC report said they had received most of an anticipated amount equal to roughly US$1,400. That seems to have been walking away money, though. 9to5Mac has a Reuters report indicating that that amount, US$1,400, was paid “to protesting new recruits who agreed to resign and leave.” A source for Reuters indicates that “more than 20,000 workers, mostly new hires not yet working on production lines, took the money and left.”
Apple also responded to the Zhengzhou issue, with a response team. They’re there to help and (one assumes) do a bit of oversight. The piece has Apple saying that its teams is “reviewing the situation and working closely with Foxconn to ensure their employees’ concerns are addressed…”
Even if Foxconn can fill the tens-of-thousands of vacancies it has open, things are still unlikely to be back to normal any time soon. The aforementioned AppleInsider piece says “Chinese authorities again ordered the city of Zhengzhou to go into lockdown,” last week. “People will require a negative COVID test before they can leave the area,” according to the report.
Zero-COVID Frustrations Spark Rare Public Protests in China
Worth noting — it’s not just people who make iPhones, people who sell iPhones, and people who want to buy them getting frustrated with China’s Zero-COVID policies. An apartment fire in Xinjiang has sparked protests across the country. According to the BBC, “lockdown rules were blamed for hampering rescue efforts after a tower block fire in which 10 people died.” One account I read said that firetrucks were positioned so far from the building that water from the hoses did not even reach the flames. While protesters say that that was due to zero-COVID regulations, authorities in China “have denied those claims.”
And people are sick of it. In the ensuing days, “[demonstrators] gathered in the capital Beijing and the financial hub Shanghai,” according to the BBC. The report says:
Many held up blank pieces of paper to express their discontent and acknowledge the censorship. Some have, however, gone as far as calling for President Xi Jinping to step down.
During a protest Saturday night in Shanghai, the BBC says protesters “were heard openly shouting slogans such as ‘Xi Jinping, step down’ and ‘Communist party, step down.’” How long the protests will continue and what their ramifications will be are total unknowns at this point.
Apple and South Korea FTC Seem to Reach Agreement on App Store Overcharges
Apple and South Korea’s Fair Trade Commission (FTC) have had a meeting of the minds. The Register out of the UK says the Cupertino-company will apparently change a rather odd billing practice for the App Store in South Korea. According to the report:
…the change comes after the Commission (FTC) in September launched an antitrust probe into Apple – in part because it added a ten percent sales tax before charging commission fees in South Korea, and only South Korea. The unusual billing policy resulted in Korean app developers paying a 33 percent rate of commission while their overseas counterparts paid only 30 percent.
While one might wonder why that happened, FTC Chairman Han Ki-jung seems happy to have the whole thing sorted. The Register quotes Han (via machine translation) saying:
If Apple’s voluntary correction is carried out well in the future, I think it will alleviate some of the difficulties of domestic app developers, and help app market operators and app developers communicate more actively to build a fairer and more vibrant app market ecosystem…
You say that was a machine translation, huh? Never would have guessed.
A Back and Forth Battle Over iPhone Sales in Brazil
An interesting power move by officials in Brazil. Cult of Mac says:
Brazilian authorities seized “hundreds of iPhones” across retail stores in the country on November 11. The phones were confiscated because Apple was selling them without a bundled power adapter.
So what do Brazilians who want an iPhone do now? Go to the store and buy one. The piece says Apple’s “already been granted an injunction against the seizure by a Brazilian court.” While Brazilian consumer protection agency PROCON is enforcing rules that require the iPhones to be sold with power bricks, the judge who granted the injunction doesn’t think Apple is violating any rules. In fact, the piece says he:
…claims that [Brazil’s] regulatory body is abusing its power and violating the “freedom in the exercise of economic activity” by trying to ban the sale of iPhones.
“Apple will likely have more trouble with Brazil’s regulatory body in the future until a court takes a final decision on this matter,” according to the Cult. No word in the piece on when such a decision might be reached.
St. Louis Apple Store Workers Abandon Union Vote Plans
And finally today, remember the story of the St. Louis Apple Store that was moving toward a union vote? Never mind — for now, anyway. Just under two-weeks ago 9to5Mac said the International Association of Machinists and Aerospace Workers (IAM) had “filed a petition with the National Labor Relations Board for a vote on unionization.” According to the IAM site, the organization sought to represent “approximately 82 Apple store employees in St. Louis” in their bid to unionize. It was unclear whether the store in question was Apple Saint Louis Galleria or the city’s other store, Apple West County. Now, it’s neither.
A new piece from 9to5Mac cites a Bloomberg report saying “the staff has now withdrawn its plan to move forward with the process.” According to the report, the “IAM says ‘anti-union practices and increased hostility towards workers’ were factors in abandoning the effort.” While the St. Louis crew may have walked away, the IAM plans to press on. The organization says it “will continue to ensure that all labor laws are followed,” and that it remains “hopeful that Apple workers will get the respect and dignity they deserve.”
Today on The Mac Observer’s Daily Observations Podcast
In light of the protests in China, TMO Managing Editor Jeff Butts joins me to talk societal issues, Foxconn issues, and issues for Apple investors. Then, a Mailbag Monday question from Johnny: If chipmaking needs water, why are chipmakers going to Arizona? That’s all today on the Daily Observations Podcast from The Mac Observer.