Apple’s coronavirus warning rattles markets

Apple has warned that disruption in China caused by the coronavirus will hit first-quarter revenues.

(Image credit: 2020 Getty Images)

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri