Apple ‘Vulnerable’, Revenue Bitten By Coronavirus
Apple has become the first tech giant to admit it won’t meet its revenue projections for the current quarter resulting from the coronavirus, which had limited iPhone production globally.
The California-based iPhone maker had last month projected record revenue for the current quarter of between US $63 billion and US $67 billion, which it claimed was a wider than normal spectrum due to the fatal virus. Apple didn’t provide an updated sales estimate, saying the situation in China is transforming and that it would reveal more information after its earnings call in April.
Apple’s announcement is one of the most prominent examples of the broader impacts of the coronavirus on global business and markets as the outbreak continues to spread, dwarfing smartphone sales and commodity prices and halting production across industries.
The closures resulting from the fatal virus, which include factory shutdowns and travel bans, are also extending into supply chains around the world as China is one of the biggest production manufacturers in the world.
Foxconn, who has factories located in China’s Shenzhen district, has been forced to halt production over the past few weeks, alongside Volkswagen, which on Monday said it would postpone production restarts in China for another week.
Fiat Chrysler Automobiles also revealed last week it had temporarily halted production in Serbia because it could not get parts from China.
Chinese consumers are also an increasingly important market for global companies. The virus’ impact on China, the world’s second largest economy, will be determined by how quickly manufacturers are able to restart production. The manufacturing sector is also a core sector of the country’s economy, accounting for almost 30 per cent of the nation’s gross domestic product last year.
Apple’s announcement is the second time in two years the tech giant has reset revenue projections because of problems from China. Just 12-months ago, it slashed guidance for the first time in more than 15 years because of weak iPhone demand in China and across the globe.
Apple is one of China’s most successful US brands, racking in US $44 billion in sales last year across Greater China, a region that includes Taiwan and Hong Kong and accounts for almost a fifth of the company’s total revenue.
The dependency on China’s manufacturing and consumer sectors made Apple vulnerable as the new, potentially fatal Coronavirus paralysed the country. The Chinese government moved to contain the virus by limiting movement across the country and putting Wuhan, the city at the epicentre of the outbreak, into lockdown.
Fears over the virus eventuated in the closure of businesses nationwide and caused a 10-day delay in the resumption of manufacturing after the Lunar New Year Holiday – one of China’s biggest celebrations.
Apple said its contract manufacturers were ramping up production slower than what they had expected and as a result, iPhone supply shortages impacting global sales would be expected.
The tech giant also said the closure of its own stores and many partner stores across China had impacted product sales. Many stores have been operating at reduced hours and had low customer traffic, but the company added it is working to gradually reopen its stores and will continue to do so.
Outside of China, Apple said the demand for its products and services were strong and reflected expectations.
The announcements comes as a reversal from the company’s previous statements on the virus. In late January, Chief Executive Tim Cook downplayed the risk of the coronavirus, saying the company was working on plans to compensate for any loss in production from Wuhan, where two of Apple’s top 200 suppliers are located.
‘We factored our best thinking in the guidance that we provided you,’ he said in January.
Apple also revealed it is more than doubling a previously announced donation to support public health efforts in the embattled country.
The virus threatens to derail Apple’s business just as the company was beginning to show signs it was regaining momentum, after weak iPhone sales contributed to a 2 per cent decline in total revenue for the 2019 fiscal year ending in September.
The company last month announced record revenue and profit following strong sales of its flagship smartphone, alongside AirPods, apps and wireless earbuds.
Apple’s shares have rallied over the past 12 months behind the release of its latest iPhone, with anticipation mounting about sales of subscription services, including Apple Music, and of its first 5G smartphones released later this year. Its market value has more than doubled since early 2019 to US $1.4 trillion.
But Apple still needs a steady supply of iPhones to extend its sales growth into the current quarter and beyond. As the virus grappled with the country, travel restrictions made business difficult for Apple’s biggest manufacturing partner, Foxconn, to secure workers for factory production work, according to The Australian. Some plants have resumed operations in a limited capacity but are uncertain when normal trade will presume.
Foxconn is aiming to resume 50 per cent of mainland China production by the end of this month, and 80 per cent in mid-March.