Yahoo Finance Apple cuts revenue forecast as coronavirus wreaks havoc on its Chinese supply chain
Apple has warned investors that it will miss its revenue forecast for this spring due to the devastating impact of coronavirus on the Chinese economy.
The company had previously said that it expected to report net sales of between $63bn (£48bn) and $67bn in the three months ending this June, a wider than usual range that it blamed on "uncertainty "over the epidemic.
But late on Monday, in a letter to investors, Apple admitted that it would miss even those targets because the disease had strangled the supply of new iPhones and crushed customer demand as it forced the company to shut down factories and closed high street shops.
It is the second time in the last 13 months that Apple has had to cut its forecasts due to problems in China, where it makes most of its products and more than one tenth of its revenue. The company did not give any new predicted numbers.
The letter said: "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...
"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."
The company went on to say that while its iPhone factories have now reopened, they are "ramping up more slowly than anticipated", causing an iPhone shortage that will "temporarily affect revenues worldwide".
According to reports, Foxconn, one of Apple's main suppliers, does not expect even half of its factories to be running again until the end of February, although the company has denied that claim.
Meanwhile, the letter said, all Apple Stores and many authorised third party shops have closed, and those that remain open "have been operating at reduced hours and with very low customer traffic" as consumers hole up indoors to avoid infection.
Apple's letter insisted that the disruption would be short-term, concluding: "Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations... Apple is fundamentally strong, and this disruption to our business is only temporary."
Coronavirus has infected more than 70,000 people and killed more than 1,770 since it began spreading among humans in the Chinese province of Hubei, causing the World Health Organisation to declare an international emergency. Cases have sprung up in numerous other countries including Britain, the US, India, France, Russia and Egypt.
The pneumonia-like disease has hobbled the Chinese economy, with many workplaces closed, large areas under quarantine, international flights frozen and shortages of components ripple out through the many complex supply chains which extend from China's manufacturing sector all over the world.
Daniel Ives, managing director of equity research at Wedbush Securities, said: "It's a shock to the system. It confirms the worst fears about just how impacted Apple and its supply chain has been by coronavirus outbreak... I think it's the first company of many that could go down this path because of the disruption."
He said that although Apple had proven its "credibility" in the past by accurately predicting temporary problems, the cancelling of previous revenue guidance "speaks to just how significant this outbreak is".
In an analyst's note, he added that although the size of the impact was "clearly worse than feared", he remained bullish about Apple's stock, arguing that the virus was unlikely to cause long-term problems for the company.
According to the Washington Post, the Chinese provinces most stricken by the virus are host to almost 50,000 branches or subsidiaries of foreign corporations. A total of around 60m people are now under quarantine, almost as many people as the whole population of the UK.
Apple also pledged to double its donations to the fight against the virus.
