Apple does not expect to meet its revenue forecast for the March quarter due to impact of the coronavirus outbreak on manufacturing of iPhones and sale of Apple products within China, the company announced yesterday. The COVID-19 outbreak has shuttered large parts of China and its impact is resounding in the global economy.
In a letter to investors, the company said that its prior forecast, released on January 28, reflected the best information available at the time and their best estimates about the pace of return to work following the end of the extended Chinese New Year holiday on February 10. However, China’s return to work has been slow, with death toll due to COVID-19 increasing everyday: the virus has now killed 1,868 people and has infected over 72,000 people in China.
Apple did not provide a new forecast for its Q2 revenue. On January 28, Apple had said that it expected its revenue to be between $63 billion to $67 billion for its quarter ending March 31, 2020. Apple cited two main reasons for missing the forecast:
- Disruption in iPhone production: “Worldwide iPhone supply will be temporarily constrained.” iPhone manufacturing partner sites are located outside the Hubei province which is home to the epicentre of the outbreak — Wuhan. Although the sites have been reopened, Apple said they are ramping up slower than anticipated. These iPhone supply shortages will temporarily affect revenues worldwide, the company added.
- Last week, Taiwan-based Foxconn, which assembles iPhones for Apple, declined to say which of its plants have reopened but denied a Reuters report that said it was aiming to reach 50% production levels by the end of February. Reuters had also reported that only 10% of employees returned to Foxconn plants in Zhengzhou and Shenzen. Another Apple manufacturing partner, Pegatron, was able to reopen its Shanghai plant, but has delayed the reopening of a facility in Kushan.
- Sales within China plummet: Demand for Apple products within China “has been affected” as all of Apple’s own and partner stores in the country are shut. Stores that are open are operating for fewer hours and see low customer traffic. Apple shut down its 42 retail stores in China earlier this month, and had said they would reopen them on February 10. But only five stores have reopened and with reduced hours. Apple didn’t say when its other stores would reopen.
Customer demand for both products and services outside China has been strong and in line with expectations, the company said. “The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary,” Apple said. The company has also doubled its previously announced donation — without disclosing the amount — to support efforts to control the outbreak.