From a note to Evercore clients that landed on my desktop Friday:
ALL YOU NEED TO KNOW: On November 6th, Apple filed an 8-K with the SEC, stating that COVID-19 restrictions in Zhengzhou, China have temporarily impacted production of the iPhone 14’s Pro models. According to the filing, iPhone’s major assembly facility in the city, which is their main production hub, is operating at “significantly reduced capacity.
We estimate the shutdowns will have a 5-8M unit impact, but buyside expectations seem to be closer to a ~10M impact, with downside to ~15M. We would note that the production delays associated with China’s zero-covid policy will likely serve to accelerate the diversification of Apple’s supply chain outside of China towards a more resilient model insulated from single- country shocks.
Net/net: Lead times for the more in-demand high end models have come in by ~2-3 days on average wk/wk. Given the resilient consumer appetite for the iPhone 14 Pro models and the stickiness of the AAPL eco-system, we reiterate our view that the production delays have resulted in revenue deferral vs. demand destruction. Higher sales of the Pro models will likely have a notably positive effect on both mix/margins.
Maintains Outperform rating and $190 price target.
My take: From 5 million to 15 million is quite a gap. I wonder what -- if anything -- the buyside knows that the sellside doesn't?