money Apple's rare revenue warning left out something major — and it's a sign of how difficult it is to predict the coronavirus' impact on business
Business Insider
Richard Drew/AP
Apple said its revenue for the March quarter would be lower than the guidance range it provided in January because of the coronavirus, a rare move for the company.
It didn't provide a new estimate, however, underscoring how difficult it can be for companies to predict the fallout stemming from public health issues like the coronavirus, which has killed at least 2,014 people and infected more than 75,000 as of Wednesday evening.
Reports have suggested that upcoming products, like the low-cost iPhone Apple is rumored to be working on, may be delayed because of supply constraints and delays stemming from the outbreak.
But since the status of the virus' spread is hard to predict, we likely won't know what the impact on Apple's business will be until it reports its fiscal second-quarter earnings in April.
Even so, investors aren't likely to view any shortcomings caused by the virus as a risk to Apple's business.
In a rare move, Apple revised its quarterly revenue guidance on Monday because of supply constraints and weakened demand caused by the coronavirus outbreak. It's the second time Apple has cut its quarterly guidance in roughly one year, but before 2019 it had been about 16 years since Apple had made such a revision.
What makes Apple's most recent revision different from last year's — or the one it issued back in 2002 — is that the company has not offered a new revenue estimate. That underscores the uncertainty that a public health issue like the coronavirus can inflict on the global business landscape.
"The fact that they won't even give a range halfway through the quarter . . . this is likened to driving with your eyes closed," Gene Munster, managing partner for Loup Ventures, told Business Insider. "They did not give a range, which is testimony to the true scope of this is unknown."
As a cautionary measure, Apple previously closed its retail stores in China as well as its contact centers and corporate offices. Apple has since reopened its offices, contact centers, and some of its stores in China with limited hours, although the majority of its retail locations are still closed. Apple's iPhone manufacturing partner sites have reopened, but are ramping up more slowly than expected.
Taken together, the slower-than-expected return to normal conditions is resulting in weak demand throughout the region and supply constraints, contributing to its revised guidance.
Apple isn't alone in feeling the ramifications from ongoing concerns related to the coronavirus. The outbreak prompted tech giants such as Amazon, Google, Facebook, and Microsoft to halt travel to China at the end of January. Mobile World Congress, the biggest smartphone conference of the year, was also recently canceled after several high-profile attendees like LG, Amazon, and Facebook pulled out over concerns regarding the virus.
Beyond the tech industry, the United States is estimated to lose $10.3 billion in spending from Chinese visitors because of the effects of the virus, according to a report from consulting firm Tourism Economics.
But Apple in particular has been in the spotlight since much of its supply chain is rooted in China, which is also the company's third largest market. Apple said on Monday that it would provide more information during its earnings call in April.
When Apple issued its initial revenue guidance for its fiscal second-quarter of 2020, it predicted a range of between $63 billion and $67 billion. The company said it was operating on the best information it had at the time, but that was back in late January when it reported its fiscal first-quarter earnings.
But much has changed since then as the coronavirus has continued to spread; the disease it causes, COVID-19, has killed more 2,000 people and infected more than 75,000 as of Wednesday evening. The spread of a public health outbreak like the coronavirus is nearly impossible for a company like Apple to predict. The World Health Organization has called it a global health emergency.
"It could get contained tomorrow and it would be a vastly different outlook than if it were to go on for two months from now," Robert Muller, an enterprise hardware analyst for RBC Capital Markets, said to Business Insider. "So it's really hard to pin down too much of a number."
Since Apple made its revised guidance statement on Monday, reports have been mixed on what the ramifications could be for Apple's future products. Bloomberg reported that the low-cost iPhone Apple is rumored to be working on is still on track to debut next month, while a report from Nikkei Asian Review suggested the release could be pushed back and mass production of the device may start in March.
But Apple has not commented publicly on how the outbreak will impact its business, other than its statement revealing that it no longer expects to meet its revenue guidance for its fiscal second quarter. The company also said on Monday that it was doubling its donations to support relief efforts.
"I think you have to plan for some form of a delay at this point," Munster said. "They can launch a product, but it may be in short supply."
It's the second time in about a year that Apple has reduced its revenue outlook because of disruptions in China. Last January, it revised its guidance for its fiscal first quarter of 2019 to a lower-than-expected number because of sales challenges in China.
The ramifications from the coronavirus outbreak further highlight Apple's reliance on China. But investors aren't likely to view it as a meaningful impact to Apple's business in the long-term, Muller said. While last year's guidance revision could have been indicative of broader struggles for Apple in China, the coronavirus-related setbacks are more driven by store closures and getting facilities up-and-running after travel restrictions and closures.
"If this is truly one time in nature, if it is just a supply chain disruption, if it doesn't really alter the fundamental long-term outlook, investors will give them a pass," Muller said.
Any concerns that arise regarding Apple's revenue when it reports earnings in April will likely fade into the background by the fall, when it's expected to debut its first 5G-enabled iPhone, he said.
"Right now it's still relatively short-lived," Muller said. "We're kind of in wait-and-see."
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