Apple erases losses tied to China-related iPhone issues; analysts reaffirm strength
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Apple (NASDAQ:AAPL) shares erased losses on Monday as some analysts said they would be buyers on weakness despite the tech giant's announcement that COVID-19 lockdowns in Zhengzhou, China are impacting iPhone 14 Pro production.
Wedbush Securities analyst Dan Ives, who has an outperform rating and a $200 price target on Apple (AAPL), called the situation "very frustrating" both for the company and its investors, but added it is not a demand issue, but rather one of supply. 
"While the Zhengzhou and Foxconn situation in China remains an ongoing albatross for Apple, our positive thesis on the demand story during this economic dark storm for Apple remains unchanged and would be buyers on any knee jerk weakness this morning as the Street digests this news," Ives wrote in a note to clients. 
Apple (AAPL) shares were fractionally higher in late trading on Monday after having been down 2% at one point earlier in the session.
Notable Apple (AAPL) suppliers, including Skyworks Solutions (SWKS), Qorvo (QRVO), Taiwan Semiconductor (TSM) and Qualcomm (QCOM), were not impacted by the announcement and were largely higher in premarket trading.
Bank of America analyst Wamsi Mohan tweaked his estimates for the upcoming quarter to 78M iPhone shipments, down from 84M shipments, with the drop split equally between iPhone 14 Pro and iPhone 14 Pro Max models. 
"Our checks suggest that the Zhengzhou facility is running at about 50% utilization rate and aiming to ramp to 70% in the last two weeks of [November] and back to a full rate in [December]," Mohan wrote in a note to clients, adding that there is the possibility that the COVID-19 situation could get worse in China and the shortfall in the December quarter may not be made up in the following period. 
Mohan lowered his fiscal 2023 revenue and earnings per share estimates to $383B and $5.82 per share, down from $389B and $5.96.
The analyst reiterated the firm's neutral rating, as potential new products and services are offset by worries over lower consumer spending, weaker services and concerns from the strong U.S. dollar. 
Bernstein analyst Toni Sacconaghi, who has a market perform rating and $170 price target on Apple (AAPL), called the press release "unusual," noting that the tech giant has not historically provided mid-quarter updates and has not commented on supply chain challenges during the pandemic. 
"We note that when we spoke with Apple's CFO post earnings, he stated that uncertainty for the coming quarter was very high - including the possibility of Covid lockdowns impacting iPhone production - and that guidance was vague to reflect that uncertainty and that Apple did not want to be in a position where it would have to pre-announce," Sacconaghi wrote.
"Accordingly, yesterday's announcement may reflect increased concern that current estimates are too high, though it is unclear if it is all attributable to incremental production challenges."
Sacconaghi added that Apple's (AAPL) announcement is likely to "reaffirm" investor concern about its exposure to China, with roughly 90% of assembly and 20% of revenue coming from the world's most populous country. 
Investment firm Morgan Stanley recently wondered if the decline in Apple's (AAPL) App Store could have bottomed in September.