In the largest shock yet in terms of the effect of COVID-19 on the U.S. economy, Apple Inc. dropped its guidance for the current quarter. It said that global iPhone supply will be weak due to problems with Chinese component manufacturers. Apple also expects iPhone demand in China will be off substantially due to what the spread of the disease has done to consumer activity. China is the largest smartphone market in the world.

So far, the effects of the China virus disaster have largely sparred U.S. businesses. The exceptions to this are large companies with many retail locations in China–particularly fast food companies like Starbucks. Airlines have also been effected as travel to China has dropped sharply. Apple did announce two weeks ago that it would shutter some of its stores. However, it did not change guidance.

The Apple news is a strong indication that the effect on American business will worsen, and potentially impact first quarter GDP

The announcement:

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.

If the virus continues to spread aggressively, the April update could be ugly.

 

 

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