Apple unlikely to meet revenue guidance because of coronavirus

Weakening demand in China along with lost production due to China’s coronavirus has prompted Apple Inc to revise its sales target which it set just three weeks ago.

So far the coronavirus pandemic has killed 1,770 people in China with around 70,500 people afflicted with it; millions of others have also been confined to their homes.

Although manufacturing plants in China which produce Apple’s iPhone and other electronics have started to reopen, the pace is slower than expected, said Apple. As a result, Cupertino expects fewer iPhones are likely to be available for sale around the world, making Apple one of the biggest Western companies to be affected by China’s coronavirus.

Many of Apple stores in China continue to remain close or are operating at reduced hours. In the last quarter, China accounted for 15% of Apple’s revenue, equivalent to $13.6 billion. In late January, Apple had forecast $63 billion to $67 billion in revenue for the quarter ending in March.

“The magnitude of this impact to miss its revenue guidance midway through February is clearly worse than feared,” wrote Daniel Ives, an analyst with Wedbush, in a note.

Apple’s stock is expected to face a knee-jerk reaction on Tuesday, when Wall Street reopens after the Presidents Day holiday, said Ives.

According to analysts, the coronavirus may slash demand for smartphones by as much as 50% in the first quarter in China.

“The health and well-being of every person who helps make these products possible is our paramount priority,” said Apple’s Chief Executive Tim Cook in a statement.

Apple aims to reopen China stores “as steadily and safely as we can,” said the company.

“While trying to gauge the impact of the iPhone miss and potential bounce back in the June quarter will be front and center for the Street, we remain bullish on Apple for the longer term,” said Ives.

In contrast to Apple’s manufacturing strategy, Samsung had signaled early on, in the U.S.-China trade war, that it could meet U.S mobile phone demand without depending on Chinese production.

Samsung is far less exposed to China as an end market.

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