Even a giant can be temporarily hobbled by sickness.
Apple has revised its quarterly guidance downward not just a as a result of lowered sales in China because of the coronavirus, but also because of production problems in the country that are just now starting to be overcome.
The company issued the following statement on Monday afternoon, describing how it did not expect to meet the guidance it provided for the current fiscal quarter:
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.
Apple had initially forecast revenue for the second fiscal quarter between $85.5 billion and $89.5 billion for the first fiscal quarter of 2020, with gross margin pegged between 37.5% and 38.5%. Operating expenses were expected to lie between $9.6 billion and $9.8 billion, while a tax rate of approximately 16.5% is anticipated.
Apple’s suppliers, such as major Apple assembly partner Foxconn, have used initiatives such as requesting employees stay away from work as part of an extended Lunar New Year holiday period and keeping factories closed, in part through Chinese government demands. It is unclear when Foxconn will be up and running, but even so, it may be some time before it operates at full capacity.
In China, which has been hit the hardest by the coronavirus outbreak, Apple closed all of its outlets in the region as a precautionary measure, and has only recently begun to reopen some of its stores in Beijing.
Stay tuned for additional details as they become available.
Via AppleInsider and Apple