Apple says it will not meet current quarter revenue projections due to the Coronavirus, making the company the first major one in the U.S. to announce a revenue shortfall. The announcement is a reminder of the global dependence on China for supply chain and manufacturing, as well as the role Chinese citizens play as consumers for global brands.
The loss of Chinese tourists throughout Europe and North America has exposed how dependent high-end retailers and luxury brands like Gucci, Estee Lauder, and Prada are on Chinese consumers. As reported in the Wall Street Journal, Galeries Lafayette, the ultra-high-end boutique in Paris, remains relatively empty when normally more than 1,000 shoppers a day visit the store. In 2018, 170 million Chinese residents travelled abroad spending $277 billion according to the World Tourism Organization, of which $110 billion were spent on luxury goods, $34 billion in the United States alone.
Apple has announced that iPhone production continues to be limited with factories within the Hubei province remaining closed, which is now impacting production lines outside of China that are dependent upon parts from Chinese factories. Fiat Chrysler, for example, has halted production at its factories in Serbia due to a lack of parts, showing how China is interlinked in virtually all global manufacturing as a parts supplier.
Apple's 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." While work is starting to resume around the country, Apple says the company is experiencing a slower return to normal conditions than they 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 two factors include the aforementioned constrained iPhone supply. While iPhone manufacturing partner sites located outside of the Hubei province have reopened, they are ramping up more slowly than expected.
"The health and well-being of every person who helps make these products possible is our paramount priority," reads Apple's statement, "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 factor is simply that demand for products in China has been affected since all Apple stores in China, along with many other partner stores, remain closed. Of the stores that have remained open, many are operating at reduced hours with very low customer traffic. "We are gradually reopening our retail stores," says Apple, "and will continue to do so as steadily and safely as we can." Apple's corporate offices and contact centres in China are open, and online stores have remained open throughout.
Apple does say, however, that customer demand outside of China has remained strong and in line with expectations.
The company plans to provide more details during its next earnings call in April. "Apple is fundamentally strong," writes the company, "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 has not provided adjusted revenue projections outside of saying it would not meet the current projections of $63 billion to $67 billion, already a wider than normal range due to the virus.