Apple Cuts Revenue Guidance for Fiscal Q2 Due to Coronavirus
U.S. investors are preparing for a lower opening on Tuesday as stock index futures retreated from record highs early in the session after Apple Inc. said it will not meet its revenue guidance for the March quarter as the coronavirus outbreak slowed production and weakened demand in China.
The warning from the company with the highest market cap in the United States served as a wake-up call to investor optimism that economic stimulus by Beijing and other countries would shield the global economy from the effects of the coronavirus epidemic.
Investors initially trimmed positions in mid-January on concerns the coronavirus would have some effect on China’s economic growth and on U.S. companies doing business in the country, but those worries were put to bed in early February when China’s government made a preemptive strike against those concerns by providing massive amounts of stimulus.
The move was enough to send U.S. equity prices to record highs last week, but the warning from Apple and the subsequent sell-off in the U.S. futures indexes indicates that the damage could be significant if China cannot gain control of the virus.
As late as Monday, China’s central bank was still at by announcing an interest rate cut on medium-term loans. This was supposed to pave the way for a reduction in the benchmark loan prime rate on Thursday.
The move was also expected to provide a boost to global equity markets this week, instead sentiment was stunned when Apple informed investors its manufacturing facilities in China have begun to re-open but are ramping up more slowly than expected, reinforcing signs of a broader hit to businesses from the epidemic.
“Apple is saying its recovery could be delayed, which could mean the impact of the virus may go beyond the current quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“If Apple shares were traded cheaply, that might not matter much. But when they are trading at a record high, investors will be surely tempted to sell.”
Apple Expects to Miss Second-Quarter Forecast for Revenue
Apple said Monday that it does not expect to meet its quarterly revenue forecast because of lower iPhone supply globally and lower Chinese demand as a result of the coronavirus outbreak, CNBC reported.
The company initially said that it expected to report net sales between $63 billion to $67 billion in its fiscal second quarter, Apple did not provide a new forecast for its fiscal second-quarter revenue on Monday.
The company said it provided a wider range than usual in late January, citing the uncertainty around the coronavirus outbreak.
“As you can see from the range, anticipates some level of issue there. Otherwise, we would not have a $4 billion range,” CEO Tim Cook said at the time.
iPhones and Other Products in China Affected
Apples makes most iPhones and other products in China. The Coronavirus has caused it to temporarily halt production and close retail stores in China. Some Apple retail stores reopened in China with reduced schedules last week.
The company said Monday it is “experiencing a slower return to normal conditions than we had anticipated” after the extended Lunar New Year holiday. All iPhone manufacturing facilities in China have reopened, but Apple said it still expects supply shortages of the phone globally.
This is the second time in the last 13 months that Apple has had to cut its guidance due to concerns in China. In January 2019, Apple was forced to slash revenue guidance for its fiscal first quarter of 2019 due to weak iPhone sales in China, CNBC reported.
Apple is widely expected to announce a new, cheaper iPhone model this spring. It’s unclear if the delays in China will affect that launch.
Key Quote
“This disruption to our business is only temporary,” Apple said. “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.”
This article was originally posted on FX Empire
