Lockdowns are in place again in Shenzhen, China, after a new outbreak of Covid-19 cases. Consequently, Foxconn has had to pause operations in the city, and this could impact the production of Apple (AAPL) products.
The Shenzhen & Guanlan factories account for ~25% of Foxconn’s total production capacity, where the manufacturing of iPhones, PCs/notebooks, networking, and other parts also takes place.
Morgan Stanley’s Katy Huberty estimates Apple's exposure to Shenzhen is “less than 20% of production.”
Broken down to specific products, Morgan Stanley’s Asia supply chain team reckons 20% of iPhone, between 20-30% of the Apple Watch and only “minimal” iPad/Mac and AirPod production happens in Shenzhen.
As the major production hubs for Apple’s key products are elsewhere - the iPhone in Zhengzhou and Jiangsu, the Mac and iPad in Chengdu, and Kunshan, Weifang, and Vietnam for AirPods – and Foxconn has by now moved production to other locations, Huberty believes the lockdowns present a “near-term risk” to the tech giant, although the immediate impact will be “limited.” Plus, to blunt the near-term impact, Huberty reckons Foxconn should have “inventory buffers” in place.
That’s not to say the situation does not require monitoring. Right now, the lockdown should end on March 20, when the situation will be evaluated again. Although Huberty doesn’t doubt Apple’s manufacturing partners' ability to deal with the short-term Shenzhen lockdowns – recall, last Spring there was also a partial lockdown in Shenzhen – but obviously the situation will need to be reassessed should the lockdown persist any longer or spread any further. Additionally, logistics networks could be affected given Shanghai is also under “partial” shutdown.
iPhone SE3 lead times are currently 11 days (as of March 14th,) and lead times for the iPad Air are between 11-18 days (from March 18th, when the product will first be available). In the meantime, Huberty will “continue to monitor lead times as an indicator of the impact of factory shutdowns.”
All in all, Huberty’s rating on AAPL stays an Overweight (i.e., Buy) backed by a $210 price target. Shares could add 29% of muscle should the target pan out as planned over the next 12 months (To watch Huberty’s track record, click here)
Most on the Street are reading from the same iPad; the stock’s Strong Buy consensus rating is based on 23 Buys vs. 5 Holds. The forecast calls for one-year gains of ~19%, given the average price target stands at $193.36. (See Apple stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.