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The Ratings Game: Will Apple’s latest production issues destroy demand?


Gone forever, or just delayed?

That’s the key question being debated by analysts as they try to gauge the impact of production issues on demand for Apple Inc.’s

iPhone 14 family of devices.

The smartphone giant acknowledged Sunday that COVID-19 restrictions at a major Chinese manufacturing facility will likely result in lower shipments of the iPhone 14 Pro and iPhone 14 Pro Max than the company initially expected, and those who want the phones will have to wait longer to get them. At the same time, Apple executives maintained that demand for both models was strong.

Production issues tend to prompt questions about whether demand will be “destroyed,” or whether orders will be simply pushed out. That was a question once again in the wake of Apple’s announcement, which analysts described as “rare” for the consumer-electronics company given that executives don’t typically communicate with investors about business trends outside of earnings calls.

In the view of JPMorgan analyst Samik Chatterjee, the iPhone 14 Pro production snags don’t necessarily mean “downside to the product cycle,” since “consumer willingness to wait for high-end iPhone deliveries limits demand destruction on account of supply challenges.”

He looked to history for some examples, writing that “there is limited evidence that delays in shipping devices have had any impact on overall volumes for a product cycle (example: iPhone 12 or iPhone 13) over a multi-quarter period.”

Oppenheimer’s Martin Yang also seemed optimistic that Apple would eventually catch up with the level of interest in its phones.

While Yang and his team reduced their shipment expectations by 3.5 million units for the December period, Apple’s fiscal first quarter, they also “assume that lost sales due to capacity reduction in F1Q23 will be fully recuperated by F2Q23.” Therefore, they didn’t tweak their full-year expectations.

Barclays analyst Tim Long was more pessimistic.

“We are cutting 6 million Pro units for Dec-Q and shifting 3 million to March-Q, assuming some lost shipments will not recover,” he wrote. “Local contacts believe that the shortfall will be 10 million units, so our model still could prove aggressive.”

Apple shares were off 1.6% in premarket trading Monday.

While Apple executives called out strong demand for the iPhone 14 Pro and iPhone 14 Pro Max in the press release, a Bloomberg News report from late Sunday said that the company lowered its iPhone output target for the year by at least 3 million “primarily due to softer demand for the iPhone 14 and 14 Plus models.” The report cited multiple anonymous sources.

Apple didn’t immediately respond to a MarketWatch request for comment on the report.

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