And so it begins.
Apple on Monday said the company will likely miss revenue guidance provided late last month as a result of the fallout from the coronavirus outbreak.
“Our quarterly guidance… 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”, the company said, in a statement, before noting that although “work is starting to resume around the country… we are experiencing a slower return to normal conditions than we had anticipated”.
Dollar-yen pared an advance on the news and US equity futures slipped when they reopened coming off the US holiday.
Apple rose more than 80% in 2019, and was already up more than 10% in the new year.
The company said last month that sales in the current quarter would be between $63 billion and $67 billion, better than analysts expected (the estimate was $62.33 billion), but also a wider range than anticipated, to account for uncertainty around the epidemic in China.
“We do have some suppliers in the Wuhan area. All of the suppliers there are alternate sources and we’re obviously working on mitigation plans to make up any expected production loss”, Tim Cook said at the time. “We factored our best thinking in the guidance that we provided you. With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time”.
On Monday, the company cited two main factors in what amounts to a guide-down. To wit:
- 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.
“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”, Wedbush said, adding the following:
While we have discussed a negative iPhone impact from the coronavirus over the past few weeks, the magnitude of this impact to miss its revenue guidance midway through February is clearly worse than feared. While the knee jerk reaction will be negative tomorrow in light of this shocker and have a ripple impact across the supply chain, we believe this is… more of a timing issue rather than an extended supply/demand issue for iPhones globally and does not change our longer-term bullish thesis on the name.
The bank went on to call this “a tough pill to swallow for the bulls”.
You can expect to see more of this going forward, and it underscores what some market skeptics have spent the last several weeks warning about – namely that equities have not even attempted to price in the likely hit to corporate earnings and global growth from the coronavirus.
On Thursday, for example, Guggenheim’s Scott Minerd cautioned that risk assets “are priced for a rosy outcome” despite “the reality of the looming risks to growth and earnings”.
Now, investors will have to decide how to incorporate an Apple guidance cut into their strategy. This will likely serve as something of a reality check and it isn’t the best news for the broader market, that’s for sure.