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An employee stands in a newly reopened Apple store in Shanghai, China on Saturday, 15 February 2020.

Apple to miss revenue target due to coronavirus

An employee stands in a newly reopened Apple store in Shanghai, China on Saturday, 15 February 2020.

Apple Inc. doesn’t expect to meet its revenue guidance for the March quarter because of work slowdowns and lower smartphone demand, showing that the virus outbreak in China is taking a bigger-than-predicted toll on one of the world’s most valuable companies.

Apple’s iPhones account for the bulk of the tech firm’s revenue.

The company said the iPhone, which generates the bulk of Apple’s revenue, is temporarily constrained due to production ramping up more slowly than anticipated. “Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” the company said in a statement Monday. In addition, demand for iPhones has been reduced because stores in China have been closed or operating with reduced hours and few customers, the company said.

Apple had forecast revenue of US$63 billion to US$67 billion for the fiscal second quarter ending in March. Analysts on average estimated $65.23 billion, according to data compiled by Bloomberg. The company said in January when it announced its guidance that it anticipated factories reopening beginning February 10. That process however has been slow as factory workers and manufacturing partners look to contain the virus, which has resulted in about 1,800 reported deaths in China, from spreading further.

The novel coronavirus has killed approximately 1,800 people in China.

US stock futures slid after Apple amplified worries about the blow to corporate earnings and economic growth from the deadly coronavirus. Apple suppliers TDK Corp. and Murata Manufacturing Co. slid more than three per cent in early Asian trade.

 “This is the double-edged sword of being in China,” said longtime Apple analyst and Loup Ventures co-founder Gene Munster. “They’re the only big company with China exposure, so they are working through the pain of what has largely been a success for the company over the past decade.” Apple is the only major US technology giant to offer the majority of its products and services in China. Products from Facebook Inc., Alphabet Inc.’s Google, Amazon.com Inc. and Netflix Inc. are either limited or unavailable.

Apple had forecast revenue of US$63 billion to US$67 billion for the second quarter ending in March.

Still, Apple isn’t the only big tech company impacted by the virus. Nintendo Co. is likely to struggle with production of its Switch gaming device due to coronavirus, while Facebook previously said that it will see production of its Oculus VR headsets drop due to the epidemic.

Apple said that, outside of China, products and services sales have been “strong to date and in line with our expectations.”

The Cupertino, California-based technology giant didn’t say what its new revenue outlook is for March but that situation is “evolving.” The company said it will share more information during its April earnings call. The disclosure marks the second time in two years that Apple has readjusted its earnings forecast due to China-related factors. For fiscal 2019, it cut holiday earnings projections on slower than expected iPhone sales in China, which it attributed in part to the trade war with the US.

People wearing protective masks walk at Hong Kong Station of MTR in Hong Kong, China, on Tuesday, Feb.11, 2020. Photographer: Paul Yeung/Bloomberg

The company said that despite missing its guidance, all of its manufacturing sites for iPhones in the region have reopened. In addition to iPhone constraints, the company cited its inability to sell products at its retail and partner stores in China due to the virus. China represents Apple’s third-biggest market in terms of revenue and has 42 stores, which have been closed for much of February.

Apple said its contact centers and corporate offices in China have already reopened. It has opened a few stores in China, including in Beijing and Shanghai, but with limited operating hours.