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Apple (NASDAQ:AAPL) shares slipped nearly 1.5% in premarket trading on Wednesday as Morgan Stanley lowered its iPhone estimates for the second time in less than a month, citing a slower ramp in Foxconn’s Zhengzhou plant.
Analyst Erik Woodring, who has an overweight rating and $175 price target, now sees Apple (AAPL) iPhone shipments of 75.5M in the quarter, down from the prior view of 78.5M. He also kept his iPhone shipment estimate for the next quarter at 56.5M unchanged, implying that none of the shortfall in the current quarter would be moved to the next.
“While we might be taking an overly conservative approach given our Greater China Hardware team … estimates just a 1-2M unit incremental shortfall from the slower iPhone production ramp, … we also believe more thoroughly de-risking estimates today is the prudent decision considering the uncertainty of the production situation in China,” Woodring wrote in a note to clients.
Woodring noted that Foxconn, also known as Hon Hai Precision (OTCPK:HNHPF), is between three and four weeks behind schedule for iPhone production at the Zhengzhou, China plant as a result of the country’s COVID-19 lockdowns and worker unrest.
The analyst now expects Apple (AAPL) to generate earnings of $1.88 per share on $120.3B in revenue in the current quarter. Woodring also lowered his gross margin forecast to 42.5%, at the low end of Apple’s (AAPL) own guidance.
A consensus of analysts expect Apple (AAPL) to earn $2.02 per share on $124.56B in sales.
In early November, Apple (AAPL) warned that supply chain issues in China resulting from the country’s strict COVID-19 policies would result in lower iPhone 14 Pro and Pro Max shipments than previously estimated.
Looking ahead, Woodring conceded that “it’s more likely” that most of the demand that did not go filled in the December quarter is pushed out later in the fiscal year, but given the problems in China, as well as the global economic slowdown, it’s not 100% clear what demand trends are.
“Given iPhone 14 Pro/Pro Max lead times remain elevated at 3+ weeks, 10-15 days ahead of the supply-constrained iPhone 12 Pro and 13 Pro/Pro Max at this point in the cycle, we believe demand for the iPhone 14 Pro/Pro Max remains solid, supporting the view that lost demand in December is more likely to be deferred into March than destroyed,” Woodring added.
On Tuesday, investment firm UBS said it had seen evidence of improving wait times for the iPhone 14 Pro and iPhone 14 Pro Max in 30 countries, suggesting that the supply chain headwinds Apple (AAPL) has dealt with are starting to ease up.
