Apple warns coronavirus will hurt revenue

In a photo taken on Fen 8, 2020, a man cycles past a closed Apple store in Beijing. PHOTO: AFP

LOS ANGELES (BLOOMBERG, REUTERS) - Apple Inc said on Monday (Feb 17) it will not meet its revenue guidance for the March quarter due to the coronavirus outbreak slowing production and weakening demand in China.

Apple's manufacturing facilities in China have begun to re-open, but they are ramping up more slowly than expected, the technology company said in a statement to its investors.

Global supplies of Apple's iPhones will be limited as the sites work toward operating at full capacity, the company said.

"These iPhone supply shortages will temporarily affect revenues worldwide," the company said.

In January, Apple forecast US$63 billion (S$87.5 billion) to US$67 billion in revenue for the quarter ending in March, ahead of estimates of US$62.4 billion.

The company said it will provide more information during its next earnings call in April.

It also said that store restrictions due to coronavirus precautions have affected its sales in China, with most retail stores either closed or operating at reduced hours and with very low customer traffic.

"We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can," the company said.

The disruptions follow a strong December quarter for iPhone sales, which were up for the first time in a year.

The outbreak is expected to pile pressure on China's economy with multiple companies struggling to restart production after an extended Chinese New Year holiday.

Fiat Chrysler, Hyundai and General Motors have also said their auto production lines were, or could be, hit by Chinese factories that are slow to restart due to the virus.

Analysts have estimated that the virus may slash demand for smartphones by half in the first quarter in China, the world's biggest market for smartphones and Apple's third-biggest market in terms of revenue, Apple has 42 stores in China, which have have been closed for much of February.

"This is the double-edged sword of being in China," said longtime Apple analyst and Loup Ventures co-founder Gene Munster. "They're the only big company with China exposure, so they are working through the pain of what has largely been a success for the company over the past decade."

Apple is the only major US technology giant to offer the majority of its products and services in China. Products from Facebook, Alphabet's Google, Amazon.com and Netflix are either limited or unavailable.

Still, Apple isn't the only big tech company impacted by the virus. Nintendo is likely to struggle with production of its Switch gaming device due to coronavirus, while Facebook previously said that it will see production of its Oculus VR headsets drop due to the epidemic.

Apple said that, outside of China, products and services sales have been "strong to date and in line with our expectations."

Apple had been planning to start producing a new low-cost iPhone in February, putting it up for sale as early as March. It's unclear how coronavirus has impacted those plans.

"This unexpected news confirms the worst fears of the Street that the virus outbreak has dramatically impacted iPhone supply from China/Foxconn with a demand ripple impact worldwide," Dan Ives, an analyst at Wedbush Securities, said in a research note. He kept an outperform rating on the stock and remains bullish on the longer-term outlook.

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