Apple warns of revenue hit

LOS ANGELES • Tech giant Apple jolted investors into confronting the realities of the coronavirus epidemic when it warned on Monday that it will not meet its revenue guidance for the March quarter owing to slowing production and weakening demand in China.

Apple's manufacturing facilities in China have begun to reopen, but they are ramping up more slowly than expected, while most of its retail stores were either closed or operating at reduced hours.

Global supplies of Apple's iPhones will be limited as the sites work towards 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$87.7 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 owing 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 been closed for much of this month.

"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," Wedbush Securities analyst Dan Ives said in a research note. He kept an outperform rating on the stock and remains bullish on the longer-term outlook.

Apple is the only major United States 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 is not the only big tech company impacted by the virus. Nintendo is likely to struggle with production of its Switch gaming device owing to coronavirus, while Facebook previously said that it will see production of its Oculus VR headsets drop because of the epidemic.

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

BLOOMBERG, REUTERS