Apple investors should brace themselves for a revenue miss in the March quarter due to the coronavirus outbreak in China hat shows no signs of slowing down.
The company won’t be able to meet its financial guidance for the current quarter because the coronavirus outbreak in China has forced its leadership to cut production of iPhones. Another factor contributing to the expected revenue miss: retail store closures in China.
For context, Apple last quarter reported a whipping $91.8 billion in revenue, providing the following guidance for its March 2020 quarter:
- revenue between $63.0 billion and $67.0 billion
- gross margin between 38.0 percent and 39.0 percent
- operating expenses between $9.6 billion and $9.7 billion
- other income/(expense) of $250 million
- tax rate of approximately 16.5 percent
As mentioned, the revenue guidance won’t be met because the coronavirus spread has prompted Apple to temporary shut down its facilities in China and decrease iPhone production.
Our quarterly guidance issued on January 28, 2020 reflected the best information available at the time as well as our best estimates about the pace of return to work following the end of the extended Chinese New Year holiday on February 10. Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.
The first is that worldwide iPhone supply will be temporarily constrained. 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 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.
The second is that demand for our products within China has been affected. All of our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been 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. Our corporate offices and contact centers in China are open, and our online stores have remained open throughout.
Apple added that demand for its products outside of China is in line with its expectations. The company will provide more information during its next earnings call in April.
While this disruption is only temporary, there’s no way to tell whether the coronavirus situation might get far worse before it starts getting better. The fact that Apple admitted to being unable to sell enough iPhones because of the coronavirus outbreak’s fallout is music to the ears of Samsung’s leadership because its own suppliers are mostly based in Vietnam, not in China.
The virus spread could cost the iPhone maker an estimated $4 billion this quarter. Global stocks tanked on Tuesday morning following bad news from Apple, with banking giant HSBC announcing 35,000 layoffs following its lackluster earnings.
The Cupertino tech giant reopened some of the stores in Beijing on Friday, but with limited hours and they’re screening customers. Foxconn, Apple’s key contract manufacturer, reopened its primary iPhone plant last week with only ten percent of the workforce.
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