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Apple warns sales to fall short of target due to coronavirus impact

Technology Feb 17, 2020 11:16PM ET
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By Neha Malara and Laila Kearney

(Reuters) - Apple Inc (O:AAPL) warned on Monday it was unlikely to meet its March quarter sales guidance set just three weeks ago as the world's most valuable technology firm became one of the biggest corporate casualties of China's coronavirus epidemic.

The rapidly spreading virus has killed nearly 1,900 in China and stricken some 72,000 people, confining millions to their homes, disrupting supply chains and delaying reopening of factories after the extended Lunar New Year holiday break.

Manufacturing facilities in China that produce Apple's iPhone and other electronics have begun to reopen, but they are ramping up more slowly than expected, Apple said. That will mean fewer iPhones available for sale around the world, making Apple one of the largest Western firms to be hurt by the outbreak.

Some of its retail stores in the country remain closed or are operating at reduced hours, which will hurt sales this quarter. China accounted for 15% of Apple's revenue, or $13.6 billion, last quarter, and supplied 18% of revenue in the year-ago quarter.

In late January, Apple had forecast $63 billion to $67 billion in revenue for the quarter ending in March, which it said was a wider than normal range due to the uncertainty created by the virus. It did not offer a new revenue estimate nor provide a profit forecast on Monday.

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

Apple, worth $1.4 trillion by market capitalization, could face a torrid market reaction on Tuesday, when Wall Street reopens after the Presidents Day holiday, analysts said.

"If Apple shares were traded cheaply, that might not matter much. But when they are trading at a record high, investors will be surely tempted to sell," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.

Shares of its Asian suppliers fell on the news, with Samsung Electronics (KS:005930) losing 2.4%, Taiwan Semiconductor Manufacturing Co (TSMC) (TW:2330) down 1.8% and SK Hynix (KS:000660) shedding 3.3%.

Analysts have estimated that the virus may slash demand for smartphones by half in the first quarter in China, the world's biggest market for the devices.

SHORT-TERM IMPACT?

Apple said it will reopen China stores "as steadily and safely as we can," while global supplies of iPhones will be limited as manufacturers work toward operating plants at full capacity. It plans to provide more information in April, when it releases first-quarter results.

Wedbush said it remained optimistic that Apple would be able to recover from the coronavirus setback.

"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," Ives said.

The disruption follows a strong December quarter for iPhone sales, which were up for the first time in a year. That could provide an opening for mobile phone rival Samsung, which has invested in manufacturing capacity in Vietnam and elsewhere.

Samsung launched smartphone delivery services for customers to test its new products this week, as the spread of the virus has prompted the South Korean firm to cancel promotional events and brace for weak store sales.

Apple's contract manufacturers have added far more locations inside China than outside, with major supplier Foxconn (TW:2317) expanding from 19 locations in 2015 to 29 in 2019 and another supplier, Pegatron Corp (TW:4938), going from eight to 12 locations, according to data from Apple.

In contrast, Samsung had signaled early in the U.S.-China trade war that it could meet U.S mobile phone demand without China production. Samsung is also far less exposed to China as an end market.

Fiat Chrysler, (MI:FCHA), Hyundai Motor Co (KS:005380) and General Motors Co (N:GM) have said their auto production lines were, or could be, hit by Chinese factories that are slow to restart because of the virus.

Apple warns sales to fall short of target due to coronavirus impact
 

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Comments (14)
William Smith
William Smith Feb 18, 2020 8:13AM ET
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Even my dog could see this coming.
Brady Murray
Brady Murray Feb 18, 2020 4:23AM ET
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will buy a dip below 310. pent up demand will drive stock higher next quarter.
Zambi rambi
Zambi2019 Feb 18, 2020 12:43AM ET
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Who cares the warning. We love apple , none of the company in whole world make iphone, ipad, ipod. Just think about it, we will hold our 2022 calls
Feb 17, 2020 10:07PM ET
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No one saw this coming?LOl
hhg nguyen
hhg nguyen Feb 17, 2020 9:20PM ET
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This is what we all get for allowing treasonous companies like APPLE in bed with the Chinese communist party *******off their weak and helpless citizens...dragging the world to wake up to its murderous ways.
Junk Man
Junk_Man Feb 17, 2020 6:58PM ET
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So AAPL will sell off or will the market ignore COVID-19?
paul chiu
paul chiu Feb 17, 2020 6:58PM ET
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both but likely with less conviction on Tuesday.  The real action will be tonight in Shanghai
paul chiu
paul chiu Feb 17, 2020 6:14PM ET
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this is not unexpected.  Shorts have placed bets already like Doug Kass and Daniel Niles near 315 to 320.  Half the investment analysts community are bearish on AAPL.  If shares drop 10-15% at the open, I would look for high premium puts to sell expiring this or next Friday with strikes about 5 to 10% from where-ever shares are.
Jimmy Sandra
Jimmy Sandra Feb 17, 2020 6:14PM ET
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I doubt it will drop 10-15%. 3-5% max.
Davey Trep
Davey Trep Feb 17, 2020 6:14PM ET
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fed to buy at the open
Edward Chong
Edward Chong Feb 17, 2020 6:14PM ET
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yeap if apple drop 15%. wall.st will tumble
rob finch
rob finch Feb 17, 2020 6:14PM ET
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Betting against AAPL hasn't worked well in the past.
Eric Peterson
Eric Peterson Feb 17, 2020 6:14PM ET
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down 2% maybe. not 15%
unadad unadad
unadad unadad Feb 17, 2020 5:45PM ET
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hey bad news, go buy some puts, then we pump it higher than on good news
Patunja Patato
Patunja Patato Feb 17, 2020 5:10PM ET
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of course they wont , but there is fed to pump it up another 5%
Chris Sundo
Chris Sundo Feb 17, 2020 5:06PM ET
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Whoaa .. Apple IS THE MARKET .. I better sell Apple now and rebuy later
 
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