Apple Confirms It's Taking A Revenue Hit From Coronavirus Crisis
The company says it won't meet quarterly revenue guidance due to ‘temporarily constrained’ iPhone supply and reduced sales in China.
Apple said Monday that it no longer expects to achieve its latest revenue guidance as the coronavirus epidemic takes a toll on iPhone production and sales in China.
While Apple's contract manufacturer Foxconn reportedly received the go-ahead to re-open two key factories in China a week ago, the company does not anticipate meeting its guidance for its fiscal second quarter, which runs through the end of March.
"Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated," Apple said in an investor update statement posted on its website.
The company cited constrained iPhone production--presumably from factories lacking full staffing--as well as lowered demand in China for its expected guidance miss.
Apple had previously provided guidance for revenue of between $63 billion and $67 billion during the quarter. The company did not say specifically how its actual quarterly revenue results might differ from its guidance.
Last week, market research firm TrendForce said it was slashing its forecast on iPhone production in the quarter by 10 percent, or 4.5 million units.
With the coronavirus crisis continuing, supply of iPhone worldwide is "temporarily constrained," Apple said in its statement.
"While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated," the company said. "The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues. These iPhone supply shortages will temporarily affect revenues worldwide."
Meanwhile, demand for Apple products in China has taken a hit with many stores closed, reduced hours at other stores and "very low" customer traffic, Apple said.
"We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can," the company said.
Still, customer demand outside of China for Apple products and services "has been strong to date and in line with our expectations," Apple said.
The "disruption to our business is only temporary," the company emphasized in the statement.
"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," wrote Daniel Ives, managing director for equity research at Wedbush Securities, in a note to investors. "While we have discussed a negative iPhone impact from the coronavirus over the past few weeks, the magnitude of this impact to miss its revenue guidance midway through February is clearly worse than feared."
Nonetheless, "we remain bullish on Apple for the longer term 5G super cycle thesis despite today's news," Ives wrote. He referred to the expectation that Apple will see strong demand after launching its widely predicted 5G iPhone lineup this fall.
Along with models in Apple’s current iPhone 11 series, the China production constraints could impact the expected upcoming launch of an affordably priced, small-screen iPhone model--possibly known as the iPhone SE 2.
In the final quarter of 2019--Apple's first fiscal quarter--the company had seen the return of iPhone sales growth "thanks to the exceptional demand for the iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max," Apple CEO Tim Cook said during a call with analysts last month. "In fact, iPhone 11 was our top-selling model every week during the December quarter, and the three new models were our three most popular iPhones."