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Technology

Apple's axed forecast underscores coronavirus danger to business

Supply chain interruptions and weak Chinese demand deal double whammy

A customer in Beijing tests Apple's new iPhone 11 after it went on sale last September.   © Reuters

PALO ALTO, U.S. -- Apple does "not expect to meet" its revenue forecast for the three months through March due to the coronavirus outbreak, underlining the threat the crisis poses to multinationals.

The U.S. tech giant had projected $63 billion to $67 billion in revenue for the period, up 9% to 15% from the same period a year earlier. The virus, however, has constrained both its iPhone supply chain as well as Chinese demand, the company said on Tuesday morning, Asia time.

"Apple's profit warning is one of the very many warnings we have had showing how the coronavirus is disrupting the global value chain," said Alicia Garcia Herrero, chief economist for the Asia-Pacific region at Natixis. "The reason is simple: China has become the largest exporter of parts and components in the world" -- not just an assembler of finished goods.

No iPhones are made in Hubei Province, where the virus originated. But while production lines have resumed, Apple said it is "experiencing a slower return to normal conditions than we had anticipated." This will limit iPhone shipments, temporarily squeezing global earnings.

On the Chinese retail front, store suspensions and reduced opening hours have left Apple with "very low customer traffic," the company said.

Apple said that outside China, "customer demand across our product and service categories has been strong to date and in line with our expectations." But since the full impact of the outbreak remains unclear, the company declined to set a new forecast.

"The depth, breadth and length of this COVID-19 remain so uncertain," Rob Subbaraman, a research analyst at Nomura, wrote in a report, using the World Health Organization's name for the virus.

Apple had been on a roll before the virus struck. Sales for the October-December quarter surged 9% on the year to $91 billion, while its quarterly net profit jumped 11% to $ 22 billion. The new iPhone 11 lineup, with enhanced cameras and other functions, pushed sales and profit to record highs.

Now, however, Apple's suddenly cloudy earnings outlook may be a sign of things to come for others.

"The sectors which are more affected ... are the auto/ITC and semiconductor industries," cautioned Garcia Herrero. "So expect big profit warnings from many of them and possibly a severe impact in Asian stock markets."

Additional reporting by Nana Shibata and Wataru Suzuki in Tokyo.

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