Apple's coronavirus problems may just be starting
A worst-case scenario would include Apple's supply chain not returning to full capacity until June
Apple’s coronavirus problems could last for a lot longer than originally anticipated.
The Cupertino, California-based iPhone maker recently warned iPhone supply and consumer demand have both been disrupted by the virus’ outbreak. Returning production to full capacity, which is vital for Apple as it enters the 5G supercycle, one of its most important upgrade cycles ever, has proven to be difficult.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| AAPL | APPLE INC. | 222.01 | -0.90 | -0.40% |
“Is this late March, April, or May/June with the answers to these questions playing a vital role in the mathematical gymnastics exercise to gauge what iPhone units and overall global demand could look like for FY20 and better understanding the timing impact from the key China demand which is slated to comprise 17%-20% of overall iPhone demand for the next 12 to 18 months based on our estimates,” Dan Ives, managing director at Wedbush Securities, wrote in a note sent to clients Monday.
The coronavirus outbreak, which has sickened at least 78,811 and killed 2,462, has led to the lockdown of more than 60 million people in China. In an effort to help prevent the spread of the virus, scores of companies, including Apple, have temporarily shuttered stores and factories or reduced operations.
The delays are sparking causing some to begin looking at what a worst-case scenario may look like for the iPhone maker.
According to Ives, such a scenario would include Apple’s supply chain not reaching full capacity until late May or early June, its 5G product launches set for the fall being pushed back past the holiday season and Chinese demand destruction being worse than expected.
Employees wear face masks as they stand in a reopened Apple Store in Beijing. (AP Photo/Mark Schiefelbein, File)
Apple’s retail stores in China, which were originally expected to reopen on Feb. 10, have taken longer than expected to reopen with only locations in Beijing and Shanghai resuming operations.
Maybe even more importantly, Foxconn, which produces about half of China’s smartphone exports, including the iPhone, has only resumed a sliver of its operations, and last week pushed back against reports that it would return to 50 percent capacity before the end of February.
Last week, Apple warned the fallout from the coronavirus would prevent the company from reaching its quarterly sales target.
“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” Apple said in a statement, adding that it would miss its second quarter sales guidance of between $63 billion and $67 billion.
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Apple shares were up 6.6 percent this year through Friday, outperforming the S&P 500’s 3.3 percent gain.