Apple will miss quarterly guidance & iPhone sales estimates because of coronavirus

Posted:
in AAPL Investors edited February 2020
Apple is revising its quarterly guidance downward not just a as a result of lowered sales in China because of the coronavirus, but also because of production problems in the country that are just now starting to be overcome.




Apple issued a statement on Monday afternoon, saying that it does not expect to meet the guidance it provided for the existing fiscal quarter.
As the public health response to COVID-19 continues, our thoughts remain with the communities and individuals most deeply affected by the disease, and with those working around the clock to contain its spread and to treat the ill. Apple is more than doubling our previously announced donation to support this historic public health effort.

Our quarterly guidance issued on January 28, 2020 reflected the best information available at the time as well as our best estimates about the pace of return to work following the end of the extended Chinese New Year holiday on February 10. Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.

The first is that worldwide iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province -- and while all of these facilities have reopened -- they are ramping up more slowly than we had anticipated. The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues. These iPhone supply shortages will temporarily affect revenues worldwide.

The second is that demand for our products within China has been affected. All of our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been operating at reduced hours and with very low customer traffic. We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can. Our corporate offices and contact centers in China are open, and our online stores have remained open throughout.

Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.

The situation is evolving, and we will provide more information during our next earnings call in April. 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. Our profound gratitude is with those on the front lines of confronting this public health emergency.

Apple's guidance for the second fiscal quarter of 2020

Apple was forecasting revenue for the second fiscal quarter between $63 billion and $67 billion for the first fiscal quarter of 2020, with gross margin pegged between 38% and 39%. Operating expenses were expected to hit between $9.6 billion and $9.7 billion, while a tax rate of approximately 16.5% is anticipated.

At the time, Apple said it gave a wider than normal range because of the then-new coronavirus epidemic. As of yet, Apple has not provided a new revenue guidance range, and based on the commentary Apple has issued so far, it may not.

Apple last updated its revenue estimates over a year ago. It altered its first-quarter fiscal year 2019 revenue estimates because of a poor business climate in China. As of the first quarter of 2020, that had recovered and it is unclear what long-term impact the coronavirus may or may not have for the remainder of the fiscal year.

Apple and coronavirus impacts

The coronavirus is a major global issue, with many companies having to mitigate the effects of the spread for themselves as well as meeting the demands of government agencies, while simultaneously having to plan and implement alternative ways to manufacture goods. As one such major entity, Apple is keenly aware of the potential damage the virus can cause to its bottom line.

Apple's suppliers, such as major Apple assembly partner Foxconn, have used initiatives such as requesting employees stay away from work as part of an extended Lunar New Year holiday period and keeping factories closed, in part through Chinese government demands. It is unclear when Foxconn will be up and running, but even so, it may be some time before it operates at full capacity.

In China, the country worst affected by the outbreak, Apple closed all of its outlets in the region as a precautionary measure, and has only recently started to open some of its stores in Beijing.
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Comments

  • Reply 1 of 52
    tmaytmay Posts: 5,072member
    This is an important statement to make at this time, not just for financial reasons, but to acknowledge that Apple will be acting with appropriate caution in reopening its retail and manufacturing operations in China.
    MacPrololliverMisterKitchasm
  • Reply 2 of 52
    The skill (in my case just luck) will be in choosing at what point in the expected share price dip to buy more AAPL.. They’ll eventually rise again unless of course there is a covid19 apocalypse. In which case the cash won’t be much use.
    MacProflyingdplolliver
  • Reply 3 of 52
    avon b7avon b7 Posts: 5,682member
    Most companies are in the same boat. Better to err on the side of caution.
  • Reply 3 of 52
    k2kwk2kw Posts: 2,015member
    tmay said:
    This is an important statement to make at this time, not just for financial reasons, but to acknowledge that Apple will be acting with appropriate caution in reopening its retail and manufacturing operations in China.
    This just shows that Cook should have diversified the Apple Assembly supply chain years ago.   
    razorpitelijahgben20SpamSandwichdasanman69anantksundaramchemengin1
  • Reply 5 of 52
    lkrupplkrupp Posts: 8,999member
    China has the West by the gonads and they know it. Turns out that almost 100% of generic drugs are now manufactured in China too. So that cheap generic blood pressure pill or cholesterol pill you take is made in some Chinese factory by god knows who. There have been several recalls of a drug called Losartan (blood pressure) because of potential contamination by carcinogens, all made in China. Damn near everything you see at your local convenience store, your local department store, Walmart, comes from China. As entitled and materialistic as we are our lives would descend into chaos and depression if China chose to put their thumb on us. People here are already bitching about how long it takes to a pair of AirPods Pro.
    razorpitrandominternetpersonben20Carnage
  • Reply 6 of 52
    lkrupplkrupp Posts: 8,999member
    k2kw said:
    tmay said:
    This is an important statement to make at this time, not just for financial reasons, but to acknowledge that Apple will be acting with appropriate caution in reopening its retail and manufacturing operations in China.
    This just shows that Cook should have diversified the Apple Assembly supply chain years ago.   
    Fire Cook, right? Shove your anti-Cook drivel. If Cook didn't diversify then neither did any other manufacturer. Cook has long been acknowledged as the supply chain guru of gurus. 
    randominternetpersonMacProStrangeDayspscooter63ramanpfaffDAalsethbshankurahara
  • Reply 7 of 52
    Hopefully Apple will diversify more production out of China in future having learnt the lesson now.  Saw this coming. 

    First SARS, now Covid-19. I’m sure there will be another until countries (not just China) change the way they treat their wildlife (or any animals for that matter) 

    Perhaps corporations like Apple should pressure the Chinese government for real change - after all the impact has been billions of $ and at least 1800 dead so far.  


    ben20
  • Reply 8 of 52
    razorpitrazorpit Posts: 1,796member
    lkrupp said:
    k2kw said:
    tmay said:
    This is an important statement to make at this time, not just for financial reasons, but to acknowledge that Apple will be acting with appropriate caution in reopening its retail and manufacturing operations in China.
    This just shows that Cook should have diversified the Apple Assembly supply chain years ago.   
    Fire Cook, right? Shove your anti-Cook drivel. If Cook didn't diversify then neither did any other manufacturer. Cook has long been acknowledged as the supply chain guru of gurus. 
    Have to be honest. You two pretty much said the same thing, and I agree with both of you.
    lkrupp
  • Reply 9 of 52
    wizard69wizard69 Posts: 13,369member
    This should surprise no one!    In fact it is so obvious you have to wonder why Apple bothered to say anything.  

    In any event this just highlights the stupidity of all eggs in one basket.  
    SpamSandwichmuthuk_vanalingam
  • Reply 10 of 52
    MacProMacPro Posts: 19,251member
    k2kw said:
    tmay said:
    This is an important statement to make at this time, not just for financial reasons, but to acknowledge that Apple will be acting with appropriate caution in reopening its retail and manufacturing operations in China.
    This just shows that Cook should have diversified the Apple Assembly supply chain years ago.   
    His crystal ball was made my Samsung I guess.
    cornchip
  • Reply 11 of 52
    If it were feasible to diversify the supply chain more, I'm certain Apple would have done so.  Where else is there the workforce with similarly low cost and high quality?


    StrangeDaysmuthuk_vanalingamurahara
  • Reply 12 of 52
    Re: LKrupp’s comments

    “China has the West by the Gonads . . .”   Basically true, but we are mutually dependent.

    In the US, we have indeed sold our jobs for cheap toasters at Walmart, but China greatly profited as well.
    If China stopped selling any goods to the US we'd be in trouble - but so would China.  That would be a last resort.
    muthuk_vanalingamurahara
  • Reply 13 of 52
    lkrupp said:
    China has the West by the gonads and they know it. Turns out that almost 100% of generic drugs are now manufactured in China too. So that cheap generic blood pressure pill or cholesterol pill you take is made in some Chinese factory by god knows who. There have been several recalls of a drug called Losartan (blood pressure) because of potential contamination by carcinogens, all made in China. Damn near everything you see at your local convenience store, your local department store, Walmart, comes from China. As entitled and materialistic as we are our lives would descend into chaos and depression if China chose to put their thumb on us. People here are already bitching about how long it takes to a pair of AirPods Pro.
    Of course. But, China offered solutions to what everyone wanted -- the cheapest prices for things. Americans have their feedbags on for everything and are more than happy to not only force Chinese workers to live on subsistence wages but American's also -- as long as you're not the one making subsistence wages. 

    As Americans make less, the pressure for cheaper grows stronger -- it's a downward spiral. 

    Wall Street looks great -- Main Street is collapsing. 

    I don't know why anyone is surprised by this. 
    cornchipCarnage
  • Reply 14 of 52
    lkrupp said:
    k2kw said:
    tmay said:
    This is an important statement to make at this time, not just for financial reasons, but to acknowledge that Apple will be acting with appropriate caution in reopening its retail and manufacturing operations in China.
    This just shows that Cook should have diversified the Apple Assembly supply chain years ago.   
    Fire Cook, right? Shove your anti-Cook drivel. If Cook didn't diversify then neither did any other manufacturer. Cook has long been acknowledged as the supply chain guru of gurus. 
    LOL yeah just more of the goalpost-moving BS from the hater choir. You absolutely will not hear any such whining about other consumer electronics manufacturing. They don't even know who the CEOs are of those companies are, let alone eager to see them fired.
    edited February 2020 bshank
  • Reply 15 of 52
    asdasdasdasd Posts: 5,626member
    lkrupp said:
    China has the West by the gonads and they know it. Turns out that almost 100% of generic drugs are now manufactured in China too. So that cheap generic blood pressure pill or cholesterol pill you take is made in some Chinese factory by god knows who. There have been several recalls of a drug called Losartan (blood pressure) because of potential contamination by carcinogens, all made in China. Damn near everything you see at your local convenience store, your local department store, Walmart, comes from China. As entitled and materialistic as we are our lives would descend into chaos and depression if China chose to put their thumb on us. People here are already bitching about how long it takes to a pair of AirPods Pro.
    That’s free trade and the free market for ya. Comparative advantage or something 
    muthuk_vanalingam
  • Reply 16 of 52

    wizard69 said:
    This should surprise no one!    In fact it is so obvious you have to wonder why Apple bothered to say anything.  

    In any event this just highlights the stupidity of all eggs in one basket.  
    The component supply chain is in China, which is why assembly is in China. If there is global disaster in China, where the final product is assembled likely won't matter much since the ripples will create new choke points on the component supply chain. 

    ie, if there is no China we all have bigger problems than armchair-CEO heckling.
    edited February 2020 muthuk_vanalingam
  • Reply 17 of 52
    asdasdasdasd Posts: 5,626member
     Wages in China aren’t as low as people think. They do however produce lots of talent from their university system.  
  • Reply 18 of 52
    Does anybody know if Apple’s flagship product - Mac Pro - is now facing production shortages or not available?
  • Reply 19 of 52
    Hey Larryjw.

    Welcome to the unacceptable face of US Capitalism.
    Americans made less over the last 20 years because they didn't want to do the work that other poor people in other countries would do at 0.001 of the US cost.
    As "Exceptional Americans" we just wanted to buy cheap goods - we sold our jobs for cheap toasters at Walmart.  The US capitalist system failed working Americans.

    DAalseth
  • Reply 20 of 52
    sumergo said:
    Hey Larryjw.

    Welcome to the unacceptable face of US Capitalism.
    Americans made less over the last 20 years because they didn't want to do the work that other poor people in other countries would do at 0.001 of the US cost.
    As "Exceptional Americans" we just wanted to buy cheap goods - we sold our jobs for cheap toasters at Walmart.  The US capitalist system failed working Americans.

    I think you’re conflating free market capitalism with “capitalism”. We don’t have free market capitalism, we have a highly regulated economy and we have industries which are also highly regulated. Virtually every form of trade is regulated in the US. The difference between China and the US is the US Federal government does not own and direct large numbers of corporate interests, but there are a number of corporations which are powerful enough that they are able to limit competition with regulations. This is corporatism.

    However, don’t for even one second pretend that there’s a problem with capitalism. Competition and capitalism are responsible for bringing more people out of poverty than any other system in world history.
    edited February 2020 muthuk_vanalingamrazorpit
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