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Apple Facing Further iPhone Production Constraints From Coronavirus

Manufacturing of the iPhone in China could take a further hit as few employees reportedly are returning to work.

Production of the iPhone 11 and other models in China is reportedly not resuming to the extent that Apple had hoped, as the coronavirus epidemic continues.

While contract manufacturer Foxconn received the go-ahead to re-open two key factories in China on Monday, just 10 percent of employees have returned to work, according to a Reuters report.

[Related: Apple's iPhone 11 Line Sees 'Exceptional Demand,' But iPad Declines]

The factories in Zhengzhou and Shenzhen are the main plants involved in iPhone assembly. Citing a source, Reuters reported that less than 10 percent of workers had returned to the Zhengzhou plant and roughly 10 percent had returned to the Shenzhen factory, as a result of the ongoing coronavirus crisis. "A big challenge remains after factory resumption due to the severe situation of the outbreak," the source told Reuters.

Apple did not immediately respond to a request for comment. While the company's stock price had dropped as low as $313 on Monday, it was back to $319.42--a 0.19 percent decrease--as of just before 2 p.m. ET.

One market research firm, TrendForce, said it was slashing its forecast on iPhone production in the first quarter by 10 percent, or 4.5 million units. Along with iPhone 11 series models, the China production constraints could impact the expected launch of an affordably priced, small-screened iPhone model--possibly known as the iPhone SE 2.

"In the short term, Apple faces uncertainties in its labor force’s work resumption, and the supply of certain key components involved in the production of new iPhones cannot be properly delivered," TrendForce said in a news release Monday. "These setbacks will directly affect the upcoming release of iPhone SE2 (also known as iPhone 9) and lower our forecast of 1Q20 iPhone production by about 10%, from 45.5 million to 41 million units."

The situation is a potential "shock to the system" for Apple, wrote Daniel Ives, managing director for equity research at Wedbush Securities, in a note to investors.

"The reality of the situation is trying to peg down the exact number of iPhone sales lost and supply chain disruption is a mathematical gymnastics exercise given the moving parts and complexity of Cupertino's supply chain production," Ives wrote. "That said, based on our analysis and putting goal posts around this fluid situation, we believe the average store usually carries at least 5-6 weeks of inventory historically, so we view from a store/online channel perspective globally that for every week longer Foxconn is off production could remove ~1 million iPhones from our quarterly forecast due to supply chain constraints looking forward."

In the final quarter of 2019--Apple’s first fiscal quarter--the company saw the return of iPhone sales growth "thanks to the exceptional demand for the iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max," Apple CEO Tim Cook said during a call with analysts last month. "In fact, iPhone 11 was our top-selling model every week during the December quarter, and the three new models were our three most popular iPhones."

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