Following widespread protests, China lifted the lockdown in Zhengzhou — called iPhone city — where Apple Inc.'s AAPL supplier Hon Hai Precision Manufacturing Company Limited's HNHPF main assembly factory is located.
Good News For Apple: The easing of restrictions in China is good news for Apple, Wedbush analyst Daniel Ives said. The factory has been operating at 20-30% of its capacity over the past month, resulting in a massive iPhone shortage globally, he noted.
The analyst estimates that demand versus supply now stands at a ratio of 3:1 and about roughly 10-15 million iPhones will move from the December quarter to the March quarter.
What’s In Store For Apple: Apple is extremely limited in its options for the holiday season and is constrained by China's “zero Covid” policy, Ives said.
The analyst said he would now monitor the production ramp over the next week to assess if the shortages have eased.
“The Street will mostly look through this production disaster for Apple as a shift in iPhone timing and not penalize the stock to the full extent, Ives said.
Major strategic questions remain around the future of Apple’s production in China after Christmas, the analyst said.
Investors may also look for signals on diversifying away from China and to India and Vietnam for iPhone production, he added.
Ives said he is persisting with his bullish stance, given his thesis is demand-driven. That said, he expects these supply shortages to be an overhang in the near term.
Wedbush has an Outperform rating and a $200 price target for Apple shares.
Price Action: In premarket trading on Wednesday, Apple shares were trading 0.66% higher at $142.20, according to Benzinga Pro data.
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