From Dan Gallagher's "Apple Has No Easy Road Out of China" posted Monday by the Wall Street Journal:
Apple's short-term problems depend on the patience of its most lucrative iPhone buyers. Its long-term problems will require the patience of a much larger constituency...
Growing unrest in China furthers the questions for Apple’s long-term direction beyond just near-term iPhone sales. Substantially all of the company’s products are manufactured in China. That reliance has grown more tenuous as tensions have risen between China and the U.S.
The unprecedented nature of the latest protests adds a new element of risk that is likely to hang over any foreign business operating in China, and Apple isn’t just any foreign business. It is the world’s most valuable company and is so large that it requires its own “city” just to build iPhones, shipments of which now exceed 230 million units every year. In a note earlier this month, Bank of America analyst Wamsi Mohan wrote that “meaningful diversification from China-based manufacturing is many years away” for Apple.
A reality distortion field sure would come in handy right now.
My take: It only Apple's (unannounced) mixed-reality goggles came with a built-in RDF setting ... now that would be a killer app!
Well said.
Maybe other companies aren’t affected like Apple is because their products aren’t selling so they don’t have as big disruptions of their supply chain. But I would guess any popular product will be affected, and not just Apple’s products. TC usually can figure out a way to minimize the impact. We will see if that is true when the actual numbers come out.
Gallagher contradicts himself saying WS has not factored in the impact and then say AAPL is down 2% for a 1% shift in revenue by a few weeks that happen to cross a fiscal boundary.
Later he questions “Apple’s long-term direction”, despite the fact that Apple has already taken steps to diversify out of China, as a supplier and as a market. The decisions and plans were made long ago.
Beyond RDF – fun house mirror. He knows nothing about Apple or finance.
So what can Foxconn and Apple by extension do in the short term? Foxconn is having difficulty with newest workers because of poor communications, fairly typical employer biased pay policies, and an inability to properly address worker conditions and treatment during lockdowns. I doubt many American companies could have dealt with the same conditions here with demand high instead of falling and Covid raging locally.
So yes, Foxconn needs to treat its workers much more fairly, pay them as agreed, and protect them and the facility. Apparently the newest workers weren’t working out, so they paid them to go home. They’re trying to pay again for experienced workers to come back. And / or the factory will have to work at reduced capacity regardless of the demand situation.
As for S Lawton’s concerns about quality assembly and quailing control, Apple is not going to tolerate getting partially defective or poorly assembled iPhones out and then having to deal with complaints and warranty issues, not to mention further negative publicity. If Foxconn F***s up here, they can kiss their contracts good bye.
OT: My brother just bought a new MacBook Pro to get that M-series.
Point is: Gallagher is still counting iPhones. iPhone sales seasonality, cyclicality, and supply chain rumors have minimal predictive value.
I thought about that too. If Watch Ultra has really solid first mover sales, or upsells from regular Watch 8 sales, and AirPods Pro also sell well, Wearables could conceivably increase 5, 10, maybe 12% YOY, from $14.7B in Q1 2022 to $15.43B, $16.2B, or $16.5B respectively. A real beat would be 15% or $16.9B, but even with that, it’s only $2.2B more revenue. Apple Watches sold 46M units total in 2021, averaging 11.5M units/ quarter. If the additional $2.2B was all Watch Ultras, that would be 2.75M sold and a 20% increase in total Watch units this quarter. But this is not counting AirPods Pro, Beats, AirTags growth, additional bands, etc. Could we dare hope for a 12-20% increase in Wearables purchases as less expensive gift options while iPhone Pro models were in constrained supply?
A $2.2B increase in Wearables would be a good 30% chunk recovered of the potential $6-7B iPhone shortfall. Could then services, iPad and Mac make up the rest?
“ How Alphabet, Amazon, and Apple Fared in the Last Big Recession “
‘ By Keith Speights – Apr 9, 2022
Alphabet, Amazon, and Apple stocks fell close to 60% in the last big recession.
Each recession is different — and these companies have also changed a lot since the Great Recession.
The most important lesson for investors is that each stock bounced back strongly over time. ‘
TC and his staff gain experience from each so-called crisis and uses the learnings, and what they themselves bring to Apple, to manage situations big & small that would impact the Company, it’s Customers, and its Shareholders.