Microsoft is second tech giant after Apple to warn of coronavirus impact

Microsoft said its sales in the current quarter would be lower than it had previously predicted due to coronavirus-related disruptions in Chinese manufacturing. PHOTO: AFP

SEATTLE (NYTIMES) - Microsoft on Wednesday (Feb 26) said its sales in the current quarter would be lower than it had previously predicted because of coronavirus-related disruptions in Chinese manufacturing.

While its fast-growing cloud computing business is not affected, the company said its personal computing business, which includes Windows installations and its Surface laptops and tablets, would record lower sales than it told investors to expect last month.

"Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated," the company said in a statement.

Roughly a week ago, Apple warned it was cutting sales projections because of the public health crisis from the Covid-19 outbreak.

Apple said the factories that make its iPhones were slower to reopen after the Chinese Lunar New Year than it had expected, and the company experienced lower demand for its products from Chinese consumers. At the time, all of its stores in China were closed, though some have since begun to reopen.

The financial warnings from Microsoft and Apple - two of the most valuable publicly traded companies in the world - underscore the vulnerability of technology supply chains in China, said Dan Ives, a managing director at Wedbush Securities. Many tech companies in the United States rely on large factories in China, though some have started to shift to other countries like Vietnam.

"When bellwethers like Microsoft come out and talk about the supply chain and how it will negatively impact PC demand, it fans the flames of some of the worries out there for the broader supply chain," he said.

Microsoft's stock fell about 1 per cent in after-market trading on Wednesday evening.

Personal computing, which includes hardware sales as well as Windows installed on computers that other companies produce and sell, accounts for roughly a third of Microsoft's revenue.

In January, the company said it expected to have between US$10.75 billion (S$15 billion) and US$11.15 billion in sales for the segment, a wider-than-normal range reflecting the uncertainty at the time. The company did not provide a new sales estimate.

Unlike Apple, Microsoft does not sell much in China, and the market accounts for less than 2 per cent of the company's revenue. While its Windows and Office products are used in China, the software is often pirated.

Having two giants disclose that the coronavirus is squeezing their finances will put pressure on competitors to follow suit, said David Larcker, a professor of corporate governance at the Stanford Graduate School of Business. When companies make unusual financial disclosures, they need to juggle their duty to inform shareholders, their desire to get ahead of a big surprise and the need to keep some information secret from competitors, he said.

"It may be they are still trying to understand this," Larcker said. "It may not be a satisfying answer, but it's a truthful one."

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