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Apple warns coronavirus will hurt iPhone supply and its quarterly revenue

The virus is taking a toll on the company, both with fewer Chinese customers shopping and a shutdown in factories.

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The coronavirus, first detected in China, is hurting tech companies like Apple. 

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For the most up-to-date news and information about the coronavirus pandemic, visit the WHO website.

The coronavirus is taking a bigger toll on Apple's operations than it thought, and iPhone buyers around the world could see a shortage. 

The electronics giant on Monday warned that it likely will miss the quarterly revenue guidance it gave last month. It cited two reasons for the update: the coronavirus is hurting both demand from Chinese customers and production capabilities inside the country. China is one of Apple's biggest markets and the primary location where its devices like the iPhone are assembled. Because factories are coming online later, there will be iPhone shortages around the globe, Apple said. 

"Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated," Apple said in a statement. "As a result, we do not expect to meet the revenue guidance we provided for the March quarter."

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The company said guidance it issued at the end of January was based on information it had at the time, coupled with its estimates for when the pace of work would return to normal after the extended Chinese New Year holiday. At that time, Apple had factored the possible supplier and retail traffic impact into its revenue guidance for the March quarter, which -- at $63 billion to $67 billion -- was a bigger range than what it normally provides. That range was higher than the $62.45 billion expected by analysts. 

While Apple sells a lot of its gadgets in China, it's also tied to the country in another key way. Apple designs its phones in the US, but the devices -- like many other electronics -- are assembled in China. Many of its employees travel frequently between the region and Apple's Cupertino, California, headquarters, and the slowdown in production in China is causing a shortage of iPhones and other Apple devices across the globe. 

"Worldwide iPhone supply will be temporarily constrained," Apple said Monday. "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."

Coronavirus' reach

A pneumonia-like disease, the new coronavirus was discovered in the Chinese city of Wuhan in December. The strain has now infected nearly 72,000 people and claimed more than 1,700 lives. It's spread beyond China's borders to places like the US, Japan and Australia. Authorities around the world have begun limiting travel and enforcing quarantines to guard against the spread. 

Last week, the GSMA canceled Mobile World Congress, the world's biggest mobile show that was slated to kick off in Barcelona later this month. The trade association said it's "impossible" to proceed after company after company pulled out of MWC and as the coronavirus continued to spread. Apple doesn't attend MWC, but all of its rivals do. Many were expected to unveil their newest 5G phones in Barcelona, and those devices could now see some delays

Apple, for its part, warned last month that the coronavirus could impact its operations. It has suppliers in the Wuhan area, where the coronavirus first emerged. The iPhone maker has alternative sources for those components, Apple CEO Tim Cook said at the time, and it was "working on mitigation plans to make up any expected production loss." 

But since that time, the coronavirus has taken a bigger toll than expected, including on demand within China.

China has become one of Apple's most important markets over the past several years. In early 2015, China surpassed the US to become Apple's biggest iPhone market. (The US later regained that status.) Apple's revenue from Greater China rose 3.1% to $13.6 billion in the quarter that ended in December. It lagged behind the Americas and Europe, but sales in some product areas soared during the period. Apple saw double-digit growth for its iPhone business in Mainland China in the first quarter, Cook said, a turnaround from sluggishness Apple had experienced in recent quarters.

Apple began closing its China stores in January following the spread of the coronavirus outside of China to Asia, the US, Australia, Europe, the UK and the Middle East. Late last week, it reopened some stores, but it's still being hurt by a slowdown in shoppers. 

"Demand for our products within China has been affected," Apple said Monday. "We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can."

The company said that demand for its products outside China "has been strong to date and in line with our expectations." It's "more than doubling" the amount of aid it's donating to help with the coronavirus. 

Apple said the "situation is evolving," and it will give more information during its next earnings call in April. "Apple is fundamentally strong, and this disruption to our business is only temporary," the company said. 

Apple's full statement:

As the public health response to COVID-19 continues, our thoughts remain with the communities and individuals most deeply affected by the disease, and with those working around the clock to contain its spread and to treat the ill. Apple is more than doubling our previously announced donation to support this historic public health effort. 

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 due to two main factors.

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.

Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.

The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary. 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.

Originally published at 1:21 p.m. PT
Update at 1:58 p.m., Adds background