“There are still a lot of hurdles, from labor shortages to logistics transportation.” — Nikkei Asian Review
From “Apple’s iPhone supply woes to continue into April: sources” posted Wednesday:
Apple will likely miss its schedule for mass producing a more affordable iPhone, while inventories of existing models could remain low until April or longer, despite suppliers in China gradually resuming production amid the coronavirus outbreak, sources familiar with the matter told the Nikkei Asian Review…
Logistics in particular are a major headache. In some cases, suppliers must change truck drivers when crossing provincial borders due to quarantine requirements on anyone entering from another province. In other cases, they have to send staff to highway interchanges to register for deliveries in person, while drivers bringing supplies into a province must present authorization papers at border checkpoints, industry people said.
Beijing has asked local governments to facilitate the restart of production and work to stabilize the economy and growth. Premier Li Keqiang said last week that the key focus is to gradually resume production and work in a safe way, but he also stressed that local authorities are strictly prohibited from blocking transportation or closing roads to prevent people from returning to work. Beijing is moving to quickly revive the slowing economy, which research agencies such as Citi predict will grow at just 5.3% this year, the slowest in decades.
My take: An army moves on its stomach, iPhones on Chinese highways.
See Bloomberg’s “Low-cost iPhone plans said to remain on track for March launch” for another point of view.
I don’t see internal transportation as an issue. Most Apple suppliers are located within close proximity to final assembly. UPS and FedEx maintain hubs at the assembly point, which, in many cases, are co-located with international airports.
This is a FUD report for eyeballs (clicks) only.
A lot of the rush to the US$ will be expressed in foreign acquisition of US blue chip equities. AAPL is up in the pre-market.
The worst I’m expecting is that Apple will finish the period with 1 – 2 weeks inventory from its usual 6 weeks. This will be an important item to listen to during the conference call in April.
China’s short term demand may be down through April/May but delayed March quarter purchasing will be picked up in the June quarter.
Whatever impact Apple experiences in the March quarter will be moved out to the June quarter (historically Apple’s weakest in terms of inventory demands). I expect normalcy to return before the end of June with September quarter guidance pretty much unaffected by this media circus.
Launch inventory of new hardware products may be constrained a bit longer than usual, but by the end of the December period production will be cruising along as before.
Depleted channel inventory will not be a problem in China, only in markets outside of China, which will lessen the burden on Apple to refill it.
All things considered, I’m expecting Apple to report revenue at or slightly above the bottom of its range guidance.
I pretty much upvoted every comment you’ve made here. You’ve “groked in fullness”, as Heinlein put it.
I said in an earlier thread that Apple may have seen a pullback in expected Chinese New Year orders coming out of China, causing them to caution a possible revenue/earnings shortfall. But because of the yearly shutdown of Chinese production, they must have ramped up production to cover what they had earlier predicted. If that slowdown in Chinese orders happened, then the “overproduction” they thus created simply added to the 6-week inventory you spoke of above, which in turn means that they had more than normal inventory at the end of Chinese New Year.
Couple that with the fact that JIT means production across the world acts like a finely tuned machine. Very, very fortunately, that machine always gets turned off for Chinese New Year, which means it’s just waiting for Apple to turn the ignition key, and that the JIT machine has literally been untouched by this crisis. Indeed, some elements of it may even have been improved with the added downtime!
I’m guessing that the market has figured that out, and that they realize just how lucky Apple was that the machine got turned off when it did. Indeed, from a production POV, this may actually be a major positive for Apple, since the capacity will actually be set at a higher rate than normal for the rest of the year, which is financially beneficial.
Apple looks likely to come out of this smelling like a rose….