“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” the company said. “These iPhone supply shortages will temporarily affect revenues worldwide.”
Demand for Apple products has also dampened in China, where all the company’s stores and many of its partner stores have shuttered, according to the statement. The stores that have remained open were operating on reduced hours “with very low customer traffic,” Apple said.
“The situation is evolving,” Apple said, noting that it would provide more information in its April earnings call. “Apple is fundamentally strong, and this disruption to our business is only temporary.”
Apple’s success over the last decade, its value increasing by more than $1 trillion, is largely due to its ability to harness the power of China’s massive labor force and its sprawling network of component manufacturers that can meet the demand for the world’s most popular gadget: The iPhone.
But that dependency on China is now a risk. “Apple is not diversified as far as supply chain,” said Gene Munster, an analyst with Loup Ventures, a venture capital firm. “This is tough medicine.” He estimates Apple’s second-quarter revenue could be $10 billion below the $65.3 billion that Wall Street had previously projected.
Apple’s announcement added to the mounting economic fallout from the coronavirus epidemic, which has sickened nearly 71,000 people and killed more than 1,700, the vast majority in central China. Analysts expect the global economy to shrink this quarter for the first time since 2009 as a consequence of the outbreak.
Factories throughout China closed in response to the outbreak, sapping production in a range of industries.
In the automotive industry, Nissan temporarily closed a factory in Japan after running short on parts from China. Hyundai closed a factory in South Korea after facing similar shortages, and Fiat Chrysler warned that it may do the same.
Foxconn, a major electronics producer for Apple, said last week that most of its facilities would not be able to resume operations until the end of the month.
Many factories have reopened in the past week, but legions of workers in the sprawling quarantine zone in Wuhan, a city of 11 million, have had trouble returning to work.
In recent years, revenue guidance updates from Apple have been a rare occurrence. Apple shocked Wall Street in January of last year when it announced it was reducing its guidance because of slower-than-expected demand in China, sending its stock on a downward slide.
Analysts said Monday’s sales warning isn’t expected to have the same consequence because the dip in sales is an anomaly and not a sign of persistent risks to the company’s business.
So far, the disruption to Apple’s manufacturing ability in China has not had a major impact on the availability of its products to consumers, analysts said. But that situation may not be far off, they added.
And it could push consumer electronics companies to move assembly outside of China, analysts said, to reduce their dependence on a country long known for high-quality manufacturing at bargain basement prices. With China suffering its second major epidemic in less than 20 years, after SARS in 2003, the risks are impossible to brush off, they added.
Apple didn’t immediately respond to a request for comment about alternative manufacturing sites.
China has become an increasingly risky place for U.S. companies for other reasons, too. President Trump’s trade war has created new uncertainties, and the Commerce Department’s decision to ban U.S. companies from selling to Huawei, the world’s largest smartphone maker and major telecommunications provider, has exacerbated a technology cold war between the United States and China.
Patrick Moorhead, an analyst with the technology advisory firm Moor Insights and Strategy, said companies like Apple will probably eye Indonesia as a possible location to build up manufacturing capabilities. India could be next, if the country can improve its access to reliable power for factories. Brazil has also been floated as a possible manufacturing center, but Moorhead says the high taxes have long scared companies away. “I do think long term, this is going to be an extra added push for companies,” he said.
Another possible side effect on industry from the coronavirus could be added demand for automation, such as sophisticated robotics for manufacturing. Such advances could speed up the replacement of low cost workers in countries like China.
Moorhead, the analyst, predicted the flow of investment into robotics technology would increase because of the pandemic. “I wouldn’t be surprised if we have robots mimicking humans on the assembly line,” he said.
David J. Lynch contributed to this report.