Apple warns about target sales to fall short due to the Coronavirus outbreak

On Monday, Apple Inc (AAPL.O) issued a warning it was unlikely to complete its March quarter sales guidance set. It happened just three weeks ago as the most valuable technology firm in the world became one of the biggest corporate victims of China’s coronavirus epidemic.

A Slow Reopening

The quickly spreading virus has resulted in the death of nearly 1,900 in China and affected some 72,000 people, restricting millions to their homes, disturbing supply chains and putting off reopening of factories following the lengthened Lunar New Year holiday break.

Manufacturing facilities in China that make Apple’s iPhone and other electronics have started to reopen; however, they are ramping up more sluggish than expected, according to Apple. That will mean lesser iPhones available for sale around the world, resulting in Apple to become one of the biggest Western firms to be affected by the outbreak.

Few of its retail stores in the country remain closed or are operating at decreased hours, which are going to affect sales this quarter. China contributes 15% of the total generated Apple’s revenue, or $13.6 billion, last quarter, and generated 18% of revenue in the quarter year-ago.

In late January, Apple had forecast $63 billion to $67 billion in revenue for the quarter finishing in March, which it said was a bigger than ideal range because of the uncertainty generated by the virus. It did not provide the latest revenue estimate nor offer a profit forecast on Monday.

“The magnitude of this impact to miss its revenue guidance midway through February is worse than feared,” Wedbush analyst Daniel Ives said via a note.

Apple, which is worth $1.4 trillion by market capitalization, could experience a parched market reaction on Tuesday, when Wall Street reopens following the Presidents Day holiday, according to analysts.

Will Apple recover from this?

“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,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Shares of its Asian suppliers decreased on the news, with Samsung Electronics (005930.KS) shedding 2.4%, Taiwan Semiconductor Manufacturing Co (TSMC) (2330.TW) fell by 1.8% and SK Hynix (000660.KS) losing 3.3%.

Analysts have approximated that the virus may cut demand for smartphones by half considering the first quarter in China, the world’s largest market for electronic devices.

Apple stated it is going to reopen China stores “as steadily and safely as we can,” while overall supplies of iPhones are going to be limited as manufacturers work toward operating plants at 100% capacity. It is planning to offer more information in April when it rolls out first-quarter results.

Wedbush said it continued to be optimistic that Apple is going to recover from the coronavirus setback.

“While trying to gauge the impact of the iPhone miss and potential bounce back in the June quarter will be front and center for the Street, we remain bullish on Apple for the longer term,” Ives said.

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