Apple warns sales to fall short of target due to coronavirus impact

The rapidly spreading virus has killed nearly 1,900 in China and stricken some 72,000 people, confining millions to their homes, disrupting supply chains and delaying reopening of factories after the extended Lunar New Year holiday break.

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, 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% of Apple’s revenue, or $13.6 billion, last quarter, and supplied 18% of revenue in the year-ago quarter.

In late January, Apple had forecast $63 billion to $67 billion in revenue for Q3, which it said was a wider than normal range due to the uncertainty created by the virus. It did not offer a new revenue estimate nor provide a profit forecast on Monday.

Apple Inc’s surprise warning points to much pain for its chip and other suppliers as well as for rivals who also rely on China to build their products.

The company said while many factories that make iPhones have reopened for work, they were ramping up more slowly than anticipated. The outbreak was reverberating throughout the US firm’s supply chain, a source familiar with Apple’s operations in China said. “If one component factory stays closed and they’re the only supplier, then everyone has to stop and wait. And if there are two suppliers and one is shut down, then we need the other to do more,” said the source who was not authorised to speak to media and declined to be identified.

Stacy Rasgon, a Bernstein analyst, said Apple’s woes probably also mean fewer chips will be sold throughout the mobile device industry because the overwhelming majority are made in China.

“Maybe this is the wake up call. I would be astonished if Apple is the only one,” he said. “Every electronic supply chain runs through China in a big way.” Research firm Canalys estimates both Apple and rival Huawei Technologies have 99% of their production in China. The world’s No. 1 smartphone market may see sales halve in the first quarter due to the virus, analysts have said.