Apple will miss revenue target because of coronavirus

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Coronavirus quarantines sparks global fears

Apple is warning investors that it won't meet its financial guidance for the current quarter because of the coronavirus outbreak in China, which has forced it to cut production of iPhones.

The technology company said Monday that all of its iPhone manufacturing facilities are outside Hubei province, and all have been reopened, but that production is ramping up slowly.

"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 company said in a press release.

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Those factors are decreased iPhone manufacturing capabilities and weaker demand for its products in China, with Apple noting that its retail stores in the country are closed or operating with reduced hours.

China is Apple's third-largest retail market for iPhones, after the U.S. and Europe. Market analysts expressed concern about the virus's impact on Apple and the broader tech industry.

"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," Wedbush analyst Dan Ives said in a note to investors.

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FoxConn, which makes iPhones for Apple in China as well as products for other tech companies, said last week that the health crisis was delaying its return to full production.

"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," Ives said.

On Jan. 28, Apple said it expected second quarter revenue between $63 billion and $67 billion. Apple's second quarter ends March 30. Sales in China accounted for 15% of Apple's total revenue in the previous quarter, or $13.6 billion.

Apple says the situation is evolving and it will provide more information on its next earnings call in April.

"While this news is a tough pill to swallow for the bulls, Apple remains a company significantly exposed to this virus issue given the company's massive supply and demand tentacles throughout China," Ives said.

The majority of American companies with manufacturing operations in China have been hampered by the deadly virus, which has killed nearly 1,800 people. Travel restrictions and quarantines imposed by the Chinese government mean that many factory employees have yet to return to their jobs after the extended Lunar New Year holiday.

As a result, nearly 8 in 10 companies surveyed by the American Chamber of Commerce in Shanghai (AmCham) say they don't have enough staff to run a full production line.

First published on February 17, 2020 / 5:36 PM

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