Apple Warns of iPhone Shortages, Unlikely to Meet Revenue Guidance

Apple warned on Monday it was unlikely to meet a sales target set just three weeks ago amid lost production and weakening demand in China from the coronavirus outbreak. The illness has killed 1,770 in China and stricken some 70,500 people, with millions of others confined to their homes and factories slow to reopen after the Chinese New Year holiday break was extended due to the virus. 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 percent of Apple's revenue, or $13.6 billion, last quarter, and supplied 18 percent 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. 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's stock is expected to face a knee-jerk reaction on Tuesday, when Wall Street reopens after the Presidents Day holiday, Ives said.

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.

"The health and well-being of every person who helps make these products possible is our paramount priority," Apple Chief Executive Tim Cook said in a statement released by Apple. It will reopen China stores "as steadily and safely as we can," the company added.

Globally, supplies of iPhones will be limited as Apple's manufacturers work toward operating plants at full capacity, the company said. 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.

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

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

Fiat Chrysler, Hyundai Motor Co and General Motors Co have said their auto production lines were, or could be, hit by Chinese factories that are slow to restart because of the virus.

© Thomson Reuters 2020