From a note to Piper Sandler clients by analyst Harsh Kumar that landed on my desktop Monday:
Hon Hai, the major manufacturer of iPhones, announced that its facilities in Shenzhen will be impacted by COVID lockdowns. While Hon Hai assembles ~70% of global iPhone production, the major production hub is located in Zhengzhou, according to Bloomberg. Zhengzhou is currently not facing any COVID-driven lockdowns.
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. We also note Hon Hai manufactures ~30% of its products outside of China, per CNBC.
In addition, we view iPhone demand as sticky, so consumers will wait to make their purchase until any supply impact is resolved. Overall, we do not see a significant impact to iPhone production/ supply due to the current lockdown situation in China.
Maintains Overweight rating and $200 target.
UPDATE: In a separate note, Evercore’s Amit Daryanani (Outperform, $210) adds some color and square footage…
Apple’s main production site in Zhengzhou (aka iPhone City) has not been affected. The Zhengzhou production site is ~2.3M sq ft vs 1.5M sq ft for the Shenzhen site (Shenzhen site does manufacturing for several OEMs beyond AAPL) – it has been estimated that Zhengzhou site can manufacture ~50M iPhones /quarter (enough for a seasonally quiet timeframe). The shutdown comes during a time when seasonal demand is generally lower, which should help mitigate any impact.
My take: Like I said…