By Tripp Mickle
Apple Inc. became the first major U.S. company to say it won't
meet its revenue projections for the current quarter due to the
coronavirus outbreak, which it said had limited iPhone production
for world-wide sales and curtailed demand for its products in
The tech giant had last month projected record revenue for the
current quarter of between $63 billion and $67 billion, which it
said was a wider than normal range due to the virus. The technology
giant on Monday didn't provide an updated sales estimate, saying
that the situation in China is evolving. It said it would provide
more information when it holds its earnings call in April.
Apple's announcement is the most prominent example yet of the
broad ripple effects of the coronavirus on global business and
markets as the outbreak continues to spread, hitting smartphone
sales and commodity prices and delaying production across
The difficulties are extending into supply chains around the
world as assembly lines from Asia to Europe depend upon parts
moving swiftly from China into their plants.
Volkswagen AG said Monday it would postpone production restarts
at some Chinese plants for another week. Fiat Chrysler Automobiles
NV last week said it temporarily halted production in Serbia
because it could not get parts from China, which continues to deal
with manufacturing delays as it seeks to contain the spread of the
Oil prices have fallen 11% in recent weeks in anticipation of
reduced demand from the world's most populous country, and the
outbreak has also weighed on iron-ore prices. A dearth of Chinese
tourists in the U.S. has also hit a number of luxury brands such as
Estée Lauder Cos. and Capri Holdings Ltd. which owns the Versace
and Jimmy Choo brands. The timing of an initial public offering for
multibillion-dollar startup Airbnb Inc. may also be affected,
according to a person close to the company.
Chinese consumers are also an increasingly important market for
global brands. The coronavirus' impact on China, the world's
second-largest economy, will depend on how quickly manufacturers
are able to resume production. The manufacturing sector is a core
pillar of the country's economy, accounting for nearly 30% of the
nation's gross domestic product in 2019.
Apple's announcement is the second time in two years that the
company has reset revenue projections because of problems in China.
A year ago, it slashed guidance for the first time in more than 15
years because of weak iPhone demand in China and elsewhere in the
The back-to-back revisions underscore how China, once one of
Apple's strengths, has emerged as one of its greatest challenges.
The company has relied on China's manufacturing sector -- with its
low-cost and abundant workforce -- to assemble the vast majority of
the products it sells worldwide. It also has become one of the most
successful U.S. brands in China. It had $44 billion in sales last
year across Greater China, a region that includes Hong Kong and
Taiwan and accounts for nearly a fifth of the company's total
The twin dependency on China's manufacturing and consumer
sectors made Apple vulnerable as the new coronavirus paralyzed the
country. The Chinese government moved to contain the virus by
limiting movement across the country and locking down Wuhan, the
city at the epicenter of the outbreak. Concerns over the virus led
to the closure of stores across the country and caused a 10-day
delay in the resumption of manufacturing following the Lunar New
Apple said its contract manufacturers were ramping up production
"more slowly than we had anticipated." As a result, it said that
there would be iPhone supply shortages that temporarily affect
It also said the closure of its own stores and many partner
stores across China had affected sales of its products. Many stores
have been operating at reduced hours and had very low customer
traffic, the company said. It added that it is gradually reopening
its stores and will continue to do so as soon as possible.
The company said that outside of China demand for its products
and services had been strong and in line with expectations.
The announcement Monday represented a swift reversal in Apple's
expectations for the quarter. In late January, Chief Executive Tim
Cook downplayed the risk of the virus, saying the company was
developing plans to make up for any lost production from Wuhan,
where two of Apple's top 200 suppliers are based. He said Apple
expected factories elsewhere to reopen after the 10-day delay.
"We factored our best thinking in the guidance that we provided
you," Mr. Cook said in January.
Apple said it is more than doubling a previously announced
donation to support public health efforts in China.
The virus threatens to derail Apple's business just as the
company was showing signs it had regained its momentum. After
weaker iPhone sales contributed to a 2% decline in total revenue
for the 2019 fiscal year ended in September, the company last month
reported record revenue and profit behind strong sales of its
flagship smartphone, as well as apps and AirPods wireless
Apple's shares have rallied over the past year behind the
release of its latest iPhone, enthusiasm about growing sales of
subscription services and anticipation of its first 5G smartphones
later this year. Its market value has more than doubled since early
last year to $1.4 trillion.
Still, Apple needed a steady supply of iPhones to extend its
sales growth into the current quarter. As the coronavirus spread,
travel restrictions made it difficult for its largest manufacturing
partner, Foxconn Technology Co., to secure workers for its
factories, according to people familiar with its supply chain. Some
plants have resumed limited production but are uncertain when they
will return to full capacity, one of these people said.
Foxconn is aiming to resume 50% of mainland China production by
the end of February, and 80% in mid-March, another person familiar
with the matter said.
Manufacturers must take measures to ensure the virus won't
spread within their factories, where oftentimes hundreds or
thousands of workers gather for one shift. For instance, in
Kunshan, a manufacturing hub near Shanghai where Foxconn has a
plant, the government is requiring companies to check all workers
at entrances and quarantine workers returning from regions where
the virus outbreak is severe.
The city also requires that companies have enough masks,
thermometers and disinfectants to last for at least three days.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
February 17, 2020 19:12 ET (00:12 GMT)
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