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Analysts stumped by Apple’s unusual supply warning, see 4th quarter estimates at risk

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Apple ‘s latest factory troubles mean downside ahead to estimates for the technology giant’s December quarter, analysts say. The iPhone maker said Sunday that it’s temporarily reduced production of its latest model amid Covid-19 restrictions at its Foxconn-operated factory in China . The company also warned of fewer units shipped and longer wait times for customers. The statement has led to concerns that the company may sell fewer units in the December quarter or struggle to make enough to satisfy demand. Bernstein analyst Toni Sacconaghi called the statement “unusual,” saying in a note to clients that Apple never offers updates mid-quarter, nor has it previously commented on supply chain issues between periods. “Apple’s press release is likely to reaffirm investors’ concern about its China exposure (90%+ of its assembly is in China; and 20% of its revenues come from China) as well as ongoing concerns about the health of the current iPhone 14 cycle,” he said. “We continue to worry that iPhone 14 estimates and overall estimates for FY 23 are too high, as Apple may have been a Covid beneficiary and the company enjoyed strong iPhone cycles in each of the last two years.” While the disruption pushes lead times out by a week, they could extend even further, JPMorgan’s Samik Chatterjee said in a note to clients Monday. The headwinds also put the bank’s December-quarter estimates at risk, he added. “Even though lead times have only expanded by an additional week as of now, it still implies that the company is going to be far from achieving supply-demand balance that it usually does every year with lead times dropping to a matter of days by the end of C4Q/F1Q,” he said. “However, within the hardware portfolio, we see the demand destructions from supply pushouts the least for the iPhone, as consumers are willing to wait for delivery.” Bank of America’s Wamsi Mohan trimmed Apple estimates for the December quarter and cut his price target on the stock to $154 from $160 a share. He noted that he expects 6 million fewer units as a result of the supply disruptions. The Zhengzhou facility, however, which Bank of America currently believes is running at a 50% utilization rate, should return to its full production capacity by December, he said. Bank of America’s fresh price target reflects an 11% upside for the stock from Friday’s close. Shares have plummeted about 22% this year. Apple shares dipped 1% in premarket trading. — CNBC’s Michael Bloom contributed reporting

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