Apple published a note to investors this week saying that it will miss its quarterly guidance for the next quarter because of the impact the COVID-19 coronavirus has had on supply lines and Chinese consumer demand. The note says that Apple expects “worldwide iPhone supply will be temporarily constrained” and that Apple and its partners may not be able to make enough iPhones to meet demand around the world.
During the company’s last quarterly earnings call on January 28, it already gave an unusually large guidance range because of concerns about the health crisis, but the situation seems to be worse than Apple predicted. Several manufacturing facilities that assemble Apple products in China have been shut down amid the Chinese government’s efforts to contain the virus, and the investor note says that while those facilities are now coming back online, they’re still behind schedule.
“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,” Apple says.
Additionally, Apple Stores in China have seen reduced hours and foot traffic, or were even closed temporarily. Apple explained:
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.
That said, Apple was quick to point out that “outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.” The company added, “this disruption to our business is only temporary.” Analysts who have since chimed in have generally agreed, with many saying they will not change their long-term projections or targets for Apple even though the next quarter will see some struggles.
Apple made a similar change to its guidance based on challenges related to the US trade war with China in 2019, though, leading some analysts and journalists to question the company’s heavy reliance on the country. However, experts say it would be difficult for Apple to replace its Chinese manufacturing and logistics operations outside that country.
Bloomberg, a publication which has a strong track record recently of accurately reporting inside information on Apple’s product plans, wrote today that Apple is likely still on track to introduce a new low-cost iPhone model in March. However, Bloomberg has also reported that Apple plans to introduce an updated version of the iPad Pro “with a new camera system” in the first half of this year but that “the virus may yet impose delays or constraints on those plans.”
Bloomberg also obtained a copy of a letter Tim Cook wrote to Apple employees about the company’s struggles with the coronavirus and its impact. The text is as follows:
The response to COVID-19 has touched the lives of so many in the Apple family, and I want to thank everyone for their dedication, empathy, understanding, and care. Today, we more than doubled our donation to support the historic and global health response.
Our paramount concern is with the people who make up Apple’s community of employees, partners, customers, and suppliers in China. I also want to recognize the many people across our teams who have been working around the clock to manage Apple’s global COVID-19 response with diligence and thoughtfulness.
Corporate offices and contact centers have reopened across China, and our stores are starting to reopen, but we are experiencing a slower return to normal conditions than we had anticipated. This afternoon, I shared this update with our community of shareholders and investors to note that we do not expect to meet the revenue guidance we provided for the March quarter. Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations. 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.
The letter’s language is similar to that found in the note that went out to investors this week, which also stated that the company’s first priority is employees’ health and safety. Apple will report its Q2 2020 earnings within a couple of months, and that report will likely give onlookers even more detail about the coronavirus health crisis’ affect on the company’s plans.