“We do not expect to meet the revenue guidance we provided for the March quarter.” Apple put that line in a statement on Monday, 17 February 2020, and pinned the miss on the coronavirus.
Two things went wrong, the company said. The first was supply. Apple’s iPhone manufacturing partner sites sit outside Hubei province, and all of them had reopened, but they were ramping up more slowly than it had expected. “These iPhone supply shortages will temporarily affect revenues worldwide,” Apple said.
The second was demand in China. All Apple stores in the country and many partner stores had been closed. The ones that were open ran reduced hours and saw very low customer traffic. Apple’s corporate offices and contact centers in China were open, and its online stores never shut.
The guidance that no longer holds
On 28 January, Apple had forecast revenue of $63 billion to $67 billion for the quarter ending in March. That range was wider than usual and higher than the $62.45 billion analysts expected, CNET noted. The forecast rested on estimates of how fast work would resume after the extended Chinese New Year holiday ended on 10 February. Apple has not offered a new number. It said it would give more detail on its earnings call in April.
“Work is starting to resume around the country,” the company said, “but we are experiencing a slower return to normal conditions than we had anticipated.”
Apple has 42 stores in China, and they were closed for much of February, according to Bloomberg and Reuters reporting carried by The Straits Times. China is the world’s biggest smartphone market and Apple’s third-biggest by revenue. Analysts have estimated the virus could cut smartphone demand there by half in the first quarter.
Outside China, Apple said customer demand had been “strong to date and in line with our expectations.” It also said it was “more than doubling” its donation to the public health effort against the virus.
Analysts and the wider fallout
“This is the double-edged sword of being in China,” said Gene Munster, a longtime Apple analyst and co-founder of Loup Ventures. Apple is the only major US technology giant that offers most of its products and services in China.
Dan Ives of Wedbush Securities wrote that the news “confirms the worst fears of the Street” about iPhone supply from China and Foxconn. He kept an outperform rating on the stock and stayed bullish on the longer-term outlook.
The warning followed a strong December quarter in which iPhone sales rose for the first time in a year. Apple’s revenue from Greater China climbed 3.1% to $13.6 billion in that quarter.
Other companies felt the strain too. Fiat Chrysler, Hyundai and General Motors said their production lines were, or could be, hit by slow restarts at Chinese factories. Nintendo was expected to struggle with Switch production, and Facebook had said Oculus headset output would drop. The virus had by then infected nearly 72,000 people and killed more than 1,700, CNET reported.
“Apple is fundamentally strong,” the company said, “and this disruption to our business is only temporary.”
Sources
- Apple warns coronavirus will hurt revenue
- Apple warns coronavirus will hurt iPhone supply and its quarterly revenue – CNET
