CEO Tim Cook says Apple working to mitigate impact of China coronavirus
- Cupertino, California-based Apple reported US$91.8 billion in revenue for the quarter ended December 28
- The company is taking steps to make up for production shortages, particularly in Wuhan, where some of its suppliers are located
Apple issued a wider-than-usual sales forecast to reflect what chief executive Tim Cook called “uncertainty” caused by a virus that is cutting retail traffic, shutting stores and prompting the company to limit employee travel in China, one of its most important markets.
The company is also taking steps to make up for production shortages, particularly in Wuhan, the central Chinese city where the coronavirus originated and home to some of the company’s suppliers, Cook said on a conference call discussing recent results.
Sales in the current period will be US$63 billion to US$67 billion. While that is higher than analysts predicted, it is also a wider range than the company tends to forecast.
Cook has led Apple to a remarkable comeback in the past year, reviving iPhone sales, dodging the worst of a US-China trade war and creating a new gadget hit with AirPods. The company’s holiday-quarter revenue crushed Wall Street expectations, with double-digit sales growth from iPhones, wearables and services in mainland China.
However, the deadly, spreading coronavirus is a new challenge for Apple, which has most of its hardware made in China. Discussion of the virus was one of the few dour notes during an otherwise upbeat earnings call with analysts on Tuesday in the US.
Authorities in China have placed strict limits on travel, taking a toll on businesses across the region. More than 4,500 people have been infected in China, and at least 132 have died.
“For now, supply chains for smartphones seem okay, but that can change in a flash,” said Neil Mawston, executive director of the global wireless practice at Strategy Analytics. “If any lockdown spreads and extends well into February or even March, then supply chains could start to get tight.”
Smartphone factories typically hold two to eight weeks of component or device inventory, so there will be some buffer, at least in the short-term, he added.
After an extended Lunar New Year holiday, factories are reopening on February 10, rather than at the end of January, Cook also said. Apple has tried to account for this “delayed start up” through its wider sales forecast, he said.
Beyond potential production disruptions, the outbreak threatens to dampen sales in its largest market outside of the U.S. just as iPhone shipments globally are bouncing back.
Apple has closed one retail store in China and some that are still open have reduced operating hours.
The company is “deep cleaning” stores and has begun checking employees’ temperatures, Cook said.
Last week, Apple also began limiting employee travel in affected areas to business-critical situations, he added.
Apple reported holiday-quarter revenue that beat Wall Street expectations on rebounding iPhone demand and surging sales of wearable devices. The results marked a remarkable comeback from a year ago, when the most valuable technology company missed its own targets.
The Cupertino, California-based company reported US$91.8 billion in revenue for its fiscal first quarter ended December 28, up 9 per cent from a year earlier. Wall Street was looking for US$88.4 billion, according to data compiled by Bloomberg. Profit was US$4.99 a share, also beating analysts’ expectations.
“The strength is coming from the iPhone and continued really strong growth in wearables and the App Store,” said Shannon Cross of Cross Research. “The iPhone was very strong.”
Revenue from greater China, which includes Taiwan and Hong Kong, climbed about 3 per cent to US$13.6 billion in the holiday quarter. Apple ended the year ranked fourth among smartphone makers in the Chinese mainland overall, up one notch after reversing a decline in market share, according to research firm Canalys.
“Given the industry is heading full speed to displace 4G with 5G phones, consumers are likely to pause phone replacement to future-proof devices,” said Nicole Peng, Canalys’ vice president of mobility. “The iPhone 11 series is bucking the trend and was the best-selling 4G device in the China market.”
Apple shares have marched higher in recent months on increasingly bullish expectations for new iPhones, AirPods and revenue from iCloud storage, the App Store and other services. That elevated the stock’s valuation to the highest level in at least a decade, raising the bar for Tuesday’s results announcement in the US.
After years of rapid growth, Apple’s expansion has slowed as demand for smartphones waned and competition from Chinese rivals intensified. Under chief executive Cook, the company’s strategy has evolved. It now aims to sell new handsets to customers every three to five years, and then offer as many services and accessories as possible in the intervening years.
Analysts have been particularly excited about wearable accessories, such as the Apple Watch and AirPods.
The iPhone, however, still generates most of Apple’s revenue. And this crucial business has improved from a dire performance in last year’s holiday period. The iPhone 11 and 11 Pro models were well received in their debut in the fall and demand in China has been particularly strong, outselling 2018’s releases in a market that has otherwise been shrinking.
Apple generated US$56 billion in revenue from the iPhone in the fiscal first quarter, up 8 per cent from a year earlier. That was a lot better than the 2018 holiday period, when sales of the handset dropped about 15 per cent. Apple cut the price of its entry-level flagship iPhone by US$50, luring buyers. There are also millions of older iPhones that are losing software support from the company, spurring new purchases.
Wearables and other accessories generated US$10 billion in revenue in the holiday quarter, up 37 per cent from a year ago.