In a move that “will send waves across Wall Street”, tech giant Apple has warned that first-quarter revenues will miss already-reduced forecasts, due to disruption in China caused by the coronavirus, reports the Financial Times. Store closures have hit sales, while smartphone production has fallen as the virus has “made it hard for workers at all levels to get back to work”.
The “double whammy” of supply problems and reduced sales may hit Apple harder than most; Chinese customers account “for nearly a fifth of revenue” and “essentially all” iPhones are assembled there by partner Foxconn, note Pete Sweeney and Robert Cyran on Breakingviews.
However, Apple is by no means the only company affected: “everything from vitamins” to cars depends on materials from China, which remains a “dominant” producer of intermediate components. Indeed, even though gaming giant Nintendo has already moved some production to Vietnam, it still anticipates shortages of its latest Switch games console.
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Moving out of China entirely would be “practically impossible” for Apple in the short term, given the scale of its existing network and China’s “incomparable ability” to mobilise a workforce of millions, says Bloomberg. However, in the medium term Apple hopes to reduce its dependence on China by being “less reliant” on pure hardware sales for the bulk of its revenue, which is why it is currently pouring “billions of dollars” into creating its own streaming content for Apple TV+ and building subscription services such as Apple Music and Apple Arcade.
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