Apple revenue to take coronavirus hit

Apple logo building
Apple said customer demand outside of China continues to be strong and in line with expectations. (Pixabay)

Apple on Monday said it won’t meet its expected revenue forecasts for the current quarter because of impact from the coronavirus outbreak, which it said has restricted iPhone production and lowered device demand in China.

Late last month the iPhone-maker had guided for revenue of $63 billion to $67 billion. Since the situation is still evolving, Apple plans to provide more information on its earnings call in April.

A January report from Strategy Analytics forecast that the coronavirus (now named COVID-19) outbreak, would hurt global smartphone supply and manufacturing during the first half of 2020, noting that China accounts for 70% of production for all smartphones sold worldwide.   

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“Any delay of operations for factories, by quarantine or travel restriction, will inevitably cause temporary labor-supply shortage,” according to the report.

Apple noted that its manufacturing sites in China are not located within the Hubei province – the region where the viral outbreak originated and that has been hardest hit – and that while all of its facilities have reopened, production is not picking up as quickly as expected. Apple said the iPhone supply shortages from China will temporarily impact its revenues globally.

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Alongside supply shortages, demand for its products in China has also fallen, the company said, as Apple and many of its partner retail stores in the country have been closed. Those still open have been running on reduced hours and seen little customer traffic, according to Apple.

The tech giant said that customer demand outside of China continues to be strong and in line with expectations.

“Apple is fundamentally strong, and this disruption to our business is only temporary. Our first priority — now and always — is the health and safety of our employees, supply chain partners, customers and the communities in which we operate,” stated Apple.

Cliff Maldonado, principal analyst and founder at BayStreet Research, noted the firm, which closely tracks the U.S. and European smartphone market, had been tracking a delay of two weeks for Apple’s iPhone SE 2 launch prior to the device maker’s Monday earnings revision. However, he doesn’t believe much has changed in terms of Apple’s first 5G devices expected to launch this fall, though changes to that could make the virus situation much more impactful for Apple, he added. 

Samsung may feel less impact, as Chinese vendors could hurt at home

Strategy Analytics forecast the global market would ship 2% fewer smartphones than anticipated in 2020 because of fear and “paralysis” from COVID-19, with China smartphone shipments 5% less than expected. In 2019, global smartphone shipments totaled 1.4 billion.

The firm expects leading Chinese vendors, including Huawei, to be hit particularly hard in China.

“Huawei, OPPO, vivo and Xiaomi, are facing strong headwinds from coronavirus and we expect them to suffer badly at home in the first half of 2020,” the report states.

Earlier this month, Strategy Analytics Yiwen Wu wrote Huawei had lost momentum in Q4 2019, as COVID-19 hit handset maker in its home market, and it faced annual decline in all overseas markets. Year over year, Huawei’s smartphone shipments declined 7% globally and wholesale revenue dropped 3% in the fourth quarter, according to the firm.

Rival handset-maker Samsung, meanwhile, could be see less of an impact from the virus than Apple and Huawei, as its smartphone production facilities are concentrated in other countries outside of China, like Vietnam and India.

Samsung ceased handset production in China last year, shuttering its last factory in the country in October.

RELATED: Samsung ceases handset production in China

A person with knowledge of Samsung’s supply chain told Reuters that the electronics giant is in a better position in terms of handling virus fallout than Huawei or Apple, and that Samsung feels fortunate to escape China-related risks.

“Samsung does not say it publicly. But it is relieved,” another source told Reuters.

However, the situation could change if the virus outbreak is prolonged, as Samsung’s Vietnam production operations source many components from China, according to the news outlet.

Samsung could also be less exposed than Apple to the store closures and lower sales demand in China because of its smaller sales presence in the country. While Samsung remained the top smartphone vendor with a 21% market share for the full-year 2019, in August it had only a 1% share of the Chinese smartphone market, according to Strategy Analytics.

While Maldonado could not comment on Samsung manufacturing locations, he noted BayStreet has not heard of any supply issues for Samsung’s newly unveiled Galaxy S20 series.

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