Apple Inc. doesn’t expect to meet its revenue guidance for the March quarter because of work slowdowns and lower smartphone demand, showing that the virus outbreak in China is taking a bigger-than-predicted toll on one of the world’s most valuable companies.
The company said that the iPhone, which generates the bulk of Apple’s revenue, is temporarily constrained due to production ramping up more slowly than anticipated. “Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” the company said in a statement Monday.
In addition, demand for iPhones has been reduced because stores in China have been closed or operating with reduced hours and few customers, the company said.
Apple had forecast revenue of $63 billion to $67 billion for the fiscal second-quarter ending in March. Analysts on average estimated $65.23 billion, according to data compiled by Bloomberg.
The company said in January when it announced its guidance that it anticipated factories reopening beginning Feb. 10. That process, however, has been slow as factory workers and manufacturing partners look to contain the virus, which has resulted in about 1,800 reported deaths in China, from spreading further.
U.S. stock futures slid after Apple amplified worries about the blow to corporate earnings and economic growth from the deadly coronavirus. Apple suppliers TDK Corp. and Murata Manufacturing Co. slid more than 3% in early Asian trade.
“This is the double-edged sword of being in China,” said longtime Apple analyst and Loup Ventures co-founder Gene Munster. “They’re the only big company with China exposure, so they are working through the pain of what has largely been a success for the company over the past decade.”
Apple is the only major U.S. technology giant to offer the majority of its products and services in China. Products from Facebook Inc., Alphabet Inc.’s Google, Amazon.com Inc., and Netflix Inc. are either limited or unavailable.
Still, Apple isn’t the only big tech company impacted by the virus. Nintendo Co. is likely to struggle with the production of its Switch gaming device due to coronavirus, while Facebook previously said that it will see the production of its Oculus VR headsets drop due to the epidemic.
Apple said that, outside of China, products and services sales have been “strong to date and in line with our expectations.”
The Cupertino, California-based technology giant didn’t say what its new revenue outlook is for March but that situation is “evolving.” The company said it will share more information during its April earnings call.
The disclosure marks the second time in two years that Apple has readjusted its earnings forecast due to China-related factors.
For fiscal 2019, it cut holiday earnings projections on slower than expected iPhone sales in China, which it attributed in part to the trade war with the U.S.
Apple had been planning to start producing a new low-cost iPhone in February, putting it up for sale as early as March, Bloomberg News has reported. It’s unclear how coronavirus has impacted those plans.
“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,” Dan Ives, an analyst at Wedbush Securities, said in a research note. He kept an outperform rating on the stock and remains bullish on the longer-term outlook.
The company said that despite missing its guidance, all of its manufacturing sites for iPhones in the region have reopened.
In addition to iPhone constraints, the company cited its inability to sell products at its retail and partner stores in China due to the virus. China represents Apple’s third-biggest market in terms of revenue and has 42 stores, which have been closed for much of February.
“Stores that are open have been operating at reduced hours and with very low customer traffic,” Apple said in its statement. “We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can,” Apple said its contact centers and corporate offices in China have already reopened.
It has opened a few stores in China, including in Beijing and Shanghai, but with limited operating hours.