Ming-Chi Kuo: iPhone 14 Pro shipments will be 15-20M less than expected

From Ming-Chi Kuo's Medium account:

The total iPhone 14 Pro and 14 Pro Max shipments in 4Q22 will be 15–20 million units less than expected. Significant downside risks to Apple & iPhone supply chain due to Zhengzhou iPhone plant labor protests

A. The production of the Zhengzhou iPhone plant was significantly affected by laborers’ protests, so I cut the 4Q22 iPhone shipments by about 20% to 70–75 million units (vs. the market consensus of 80–85 million units).

(1) The total iPhone 14 Pro and 14 Pro Max shipments in 4Q22 will be 15–20 million units less than expected.
(2) The average capacity utilization rate of Zhengzhou iPhone plant was only about 20% in November, and it’s expected to improve to 30–40% in December.
(3) Pegatron and Luxshare ICT have obtained about 10% of the iPhone 14 Pro and 14 Pro Max orders from Foxconn, respectively. But mass shipments will not be until late December at the earliest.
(4) According to the production recovery progress of the iPhone 14 Pro series, shipments in December were still significantly lower than expected.

B. Downside risks to Apple and the iPhone supply chain. Apple’s 4Q22 revenue and EPS have downside risks. Hon Hai/Foxconn is facing structural competition challenges, and iPhone component shipments may decline significantly in QoQ & YoY/HoH & YoY in 1Q23/1H23.

(1) Due to the high price of the iPhone 14 Pro series, Apple’s iPhone revenue in 4Q22 may be significantly lower than the market consensus by 20–30% or more.
(2) In addition to facing the challenge of lower-than-expected iPhone shipments/revenue in 4Q22, it will also be difficult for Hon Hai to continue to be the exclusive assembler of the iPhone 15 Pro series because Apple wants to diversify supply risks.
(3) iPhone 14 Pro series shipments in 4Q22 were significantly lower than expected, but component suppliers were generally not informed by Apple to cut orders, resulting in 4Q22 component inventory higher than normal for several weeks, which will lead to component shipments may have a more significant QoQ/HoH decline in 1Q23/1H23.

C. I believe that most of the demand for the 4Q22 iPhone 14 Pro series amid the economic recession will disappear due to the significant supply and demand gap rather than deferred.

My take: Less than who expected?

22 Comments

  1. Michael Goldfeder said:
    Once I read this statement I knew this was nothing more than nonsense: “C. I believe that most of the demand for the 4Q22 iPhone 14 Pro series amid the economic recession will disappear due to the significant supply and demand gap rather than deferred.”

    Any modicum of respect for his opinion, which was on life support previously, has now immediately reached a number below whale s### at the bottom of the ocean.

    6
    November 29, 2022
    • Steven Philips said:
      Yes. That was what jumped out at me as well.

      1
      November 29, 2022
    • John Butt said:
      I didn’t at first get that far, I got stuck on the random “so I cut the 4Q22 iPhone shipments by about 20% ”
      Where is the math behind a bald number like that? Ie “my toe feels right”, the rest is a similar piece of poor reporting that should belong in a regional rag (oops unintentionally insulting regional rags now)

      1
      November 29, 2022
    • Mark Visnic said:
      That was for the hedge funds that dangled steering trades to his firm. That is how sell-side analysts get paid.

      5
      November 29, 2022
  2. John Konopka said:
    If iPhone Pro production this quarter will be significantly down, as it seems, will Tim Cook give us some sort of revenue warning before the end of the quarter?

    2
    November 29, 2022
    • Brian Loftus said:
      This is why Apple stopped providing guidance. This was inevitable. The only question was when.

      1
      November 29, 2022
      • John Konopka said:
        I don’t consider this guidance exactly. Just wondering as I don’t know, but it seems to me that CEOs often make some sort of statement before the quarter ends if there seems to be an unusual change in expected revenue.

        In fact, there was a lawsuit a few years ago because some felt that Apple failed to alert them like this.

        www (dot) reuters (dot) com/article/uk-apple-lawsuit-idUKKBN27L2HF

        I don’t know what the guidelines are, I’m guessing that the corporate lawyers have been advising Tim about what he should or shouldn’t say in this circumstance.

        0
        November 29, 2022
  3. Dave Ryder said:
    This sounds pretty bad. And, he _believes_ demand will disappear — that’s different than what most others are saying. But does he have better insight?

    3
    November 29, 2022
    • Fred Stein said:
      Yes Dave, will demand disappear? That’s his opinion with no evidence.

      Here is what we have seen. Google’s Pixel is taking share while Samsung is losing share. That makes since Google’s pricing was very aggressive and Samsung bet heavily on foldables, for which the folding feature costs a premium over similar spec’ed phones.

      1
      November 29, 2022
    • Mark Visnic said:
      Far less than a coin flip by experience.

      2
      November 29, 2022
  4. David Emery said:
    “My take: Less than who expected?”

    Less than Kuo’s nether regions, apparently…

    (If you don’t put out your own numbers, then you can’t make any credible claims about ‘expectations’)

    3
    November 29, 2022
  5. Christopher McManus said:
    These numbers make no sense to me

    I can order a Pro model on Best Buy and have it in 5 days. I can order from Apple.com and it will be delivered by 12/29 (before the end of the quarter)

    Apple did not announce the production issue until Nov 6th. Likely most of October was unaffected. I find it hard to believe Nov full-month was only 20% of capacity

    I am not saying there will not a shortfall. But I do not see anything that points to 15-20 million units. If it is that big, I would expect Apple to release another statement with more details about the quarter and production status

    3
    November 29, 2022
    • Robert Paul Leitao said:
      Christopher: You are quite kind. I looked at the article, determined it contained really weird math and moved on.

      2
      November 29, 2022
    • Fred Stein said:
      Upvoted.

      Lost in the noise. Apple started this season’s iPhone launch 1 week early. That alone ameliorates any shortfall.

      4
      November 29, 2022
  6. Dan Scropos said:
    This has about as much merit, perhaps even less, as the annual Digitimes report that, “Apple has asked suppliers to cut production.” At least we don’t have to hear *that* this year.

    Apple’s production cycle is always front-loaded, hence the annual report of a (designed) “slowdown” being requested. Looking at orders, it appears that they’re less than 2 weeks behind schedule. My guess is that they miss 4-5 million iPhones this quarter, possibly less.

    Things could certainly get better or worse between now and the holidays, but I suspect they’ll get better and Apple gets iPhones into the hands of everyone that wants one by 12/31. Regardless, Apple has other products to fill the potential small revenue void.

    0
    November 29, 2022
  7. Neal Guttenberg said:
    I wonder what was the timing of this report being released. Does it explain why Apple trailed the market today? If it was released after hours, it would seem that investors/traders are not believing it because Apple is up in the after hours, at least according to the quote I am seeing. If investors/traders believe this even a little bit, we should see a big sell off tomorrow.

    I wonder what was going on with Apple’s short interest before this report came out? The short interest could have been going up just based on the news reports of the past few days but I wonder if someone put an unusually large bet to the downside on Apple and Kuo is providing some cover there. If this report was true, then I would have expected another warning from Apple and Cook about the quarter, or maybe we will hear something soon. If the quarter is not all doom and gloom for Apple, should this call by Kuo be investigated?

    Also, Kuo seems to be saying demand will be down secondary to 2 reasons. One, he says the phone is high priced(and adds that revenues will be down according to this-by my take, higher ASPs will moderate to a small degree the drop in phone availability). Two, he says demand will dry up because of the phone being unavailable. He does seem to be bringing out all his ammunition for this call.

    2
    November 29, 2022
    • Robert Paul Leitao said:
      Neal: It’s not just this report. Apple’s been getting slammed for the past few days on the protests at the production facility and the supply challenges due to the lockdowns.

      1
      November 29, 2022
      • Neal Guttenberg said:
        Robert,

        I understand. But a 20 million phone shortfall this quarter with an ASP of $1000 is a 20 billion dollar shortfall for the quarter. That should be a material enough event that would cause Apple to have to announce it at some point in time before earnings. And you would think that if people believed this, the downdraft of the past few days would have become a hurricane.

        0
        November 29, 2022
        • Robert Paul Leitao said:
          Neal: I pay this article no heed. As I commented earlier, it’s weird math. I believe you are correct. If a miss of this magnitude were to occur in the quarter, management would be obliged to address it publicly. I know it’s anecdotal, but we were a couple/few weeks behind on our annual iPhone upgrades. We ordered iPhone 14 Pro Max handsets around the first of the month. The iPhones arrived on Saturday. That was less than four weeks from the order date. I just priced similar models – iPhone 14 Pro Max handsets in two different colors – on the Apple web site and the expected delivery dates are December 29th, two days before the end of the quarter. In my view, what is suggested, intimated and speculated in the article is inconsistent with the available facts.

          2
          November 29, 2022
  8. Daniel Epstein said:
    I have thought many times Ming’s reports about production cuts have been written to accentuate bad news about Apple. Maybe with a mind to move the stock down. He is not reliably fair minded about these kinds of stories. He often puts outs stories about the next IPhone model issues just after the latest one is released. Like he wants to get people to wait to buy something else than what was just delivered. He is a bit better on finding out information about new features in Apple devices. This doesn’t require the same kind of math.

    2
    November 29, 2022

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