Revenue in the current quarter will fall short of company’s guidance
The ripple effect of the deadly coronavirus outbreak in China is beginning to impact the bottom line of tech companies as Apple has warned that revenue this quarter will not meet the guidance the device maker issued in January due to an expected shortage of iPhones.
The Lowdown: The virus, which leads to a disease dubbed COVID-19, already is disrupting global supply chains in the tech industry and led to the cancellation of the Mobile World Congress (MWC) 2020 show in Barcelona, which had been scheduled for later this month, and other shows.
The Details: In a note to investors Monday, Apple officials said that while work throughout China is starting to ramp up, the pace is slower than expected, leading the company to say that it won’t meet the guidance for the current quarter it released in January, when it forecasted revenue of $63 billion to $67 billion. Apple officials did not release new guidance.
They attributed the problems to two primary factors:
> iPhone supply shortage: The manufacturing sites in China are outside of the Hubei province, the epicenter of the outbreak. All have reopened, but operations are ramping up less quickly than expected. The temporary supply shortages will impact global revenue.
> Falling demand for products in China: All of Apple’s stores in China have been closed, as have many partner stores. Those that have remained open have done so with reduced operating hours and customer traffic has been low. Apple’s retail stores in the country are reopening gradually. Its corporate offices and contact centers in China have remained open, along with the company’s online stores.
The Impact: The reduced iPhone supply comes after a quarter that saw iPhone sales rebound. Apple generated record revenue of $91.8 billion in the last three quarters of 2019, a 9% year-over-year increase, due in large part to high demand for iPhone 11 and iPhone 11 Pro smartphones. iPhone sales during the quarter hit $56 billion, an 8% increase, after sales of the smartphones had dropped in the previous four quarters.
Apple officials said that outside of China, customer demand for iPhones and other products and services have been strong and in line with expectations.
Background: MWC wasn’t the only tech-related event impacted by concerns over the coronavirus. Network security vendor Fortinet canceled its Accelerate 2020 user conference scheduled for this week in Barcelona and Facebook did the same with a global marketing conference set for March in San Francisco. The giant RSA 2020 security show this month in San Francisco also is feeling an impact, with IBM withdrawing from the show, citing concerns about COVID-19.
The number of confirmed cases worldwide has reached more than 73,300, with the number of deaths hitting 1,873.
The Buzz: “The situation is evolving, and we will provide more information during our next earnings call in April,” Apple officials said in the statement. “Apple is fundamentally strong, and this disruption to our business is only temporary. Our first priority — now and always — is the health and safety of our employees, supply chain partners, customers, and the communities in which we operate. Our profound gratitude is with those on the front lines confronting this public health emergency.”