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That'll take the spring out of your step: Apple warns of iPhone shortages, revenue miss due to coronavirus

Factories 'ramping more slowly than anticipated'

Apple said the COVID-19 epidemic in China has disrupted iPhone production to the point that it will lead to global shortages of the handset – and likely miss already widened revenue forecasts it set in January.

Although Cupertino's contract manufacturers' fabs are located outside of Wuhan – the city where the bio nasty is believed to have started and which remains on lock down – and the wider Hubei province, these factories belatedly re-opened after the Chinese New year.

"Work is starting to resume around the country," said Apple in a statement, "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."

Apple had provided an unusually wide revenue guidance of between $63bn and $67bn for the quarter amid worries the novel coronavirus, now formally known as COVID-19, would destabilise factories in China.

The situation worsened beyond Apple's expectations, it said adding that "worldwide iPhone supply will be temporarily constrained" as the plants are "ramping more slowly than anticipated", which "will affect revenues worldwide."

The vendor claimed: "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."

Another factor denting revenues is that "demand for our products in China has been affected." The popularity of the iPhone has waned in the Middle Kingdom as nationals flock to buy Huawei, although Apple still sells millions of the devices locally.

"All of our stores in China and many of our partner stores have been closed," said Apple. "Additionally, stores that are open have been operating at reduced hours and with very low customer traffic."

Apple stores are "gradually reopening" in the country and corporate offices and contact centres are operating as usual, it said. "Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations."

Investors hate surprises, forewarned is forearmed, and the market has smiled on the Californian company: its share price is actually up marginally at the time of writing.

Fanbois and stock owners were assured by Apple that "disruption to our business is temporary."

COVID-19 started in December and according to to China's latest estimates, some 72,436 infections have been detected and 1,868 people have died.

In the tech industry, the impact has been felt with huge swathes of products being manufactured in China. The semiconductor space felt the squeeze early on, with investors jittery about the implications for production; myriad vendors have cancelled local events; and further afield in Europe, MWC was shelved for 2020 after many vendors pulled out. MWC normally sees over 100,000 attendees from around the world.

The RSA security conference in San Francisco is going ahead despite losing major sponsor IBM and six Chinese firms unable to attend due to travel restrictions.

Just yesterday, it emerged Samsung was also making efforts to shift production out of China to Vietnam but these, like most of the rest of the world's technology supply chains, relies on components from the Middle Kingdom.

Analysts at TrendForce expect the virus to have a sizeable impact on smartphones production because the process is so labour-intensive. It expects a 12 per cent fall in phone production in the first quarter, the worst drop for the last five years. It also expects component and camera module shortages to have an impact into the second quarter.

Forrester analyst Andrew Bartels, however, said the "durable goods" part of the tech sector might see those sales it took a hit on in Q1 2020 resurfacing in Q2 or Q3, "when quarantines are lifted and production returns to normal." He added: "Of all the segments of the tech market, sales of computer and communications equipment are most likely to see this pattern. In other tech market sectors, SaaS subscription fees, telecom bills, and outsourcing fees will still be paid."

He also predicted that while China's GDP will undoubtedly take a hit in the first quarter, the immediate impact on the US economy and tech market will be small, putting "further strain on US/China relations."

TrendForce said that so far impacts have been limited because many manufacturers stockpile components ahead of the Chinese New Year holiday.

The virus might do more to achieve US President Donald Trump's trade war with China than his actual policies did. ®

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