Minimizing the impact of Coronavirus, analyst Amit Daryanani says that even those two sites have alternatives.
From a note to clients that landed on my desktop Monday:
ALL YOU NEED TO KNOW: Given the increased risk and spread of Coronavirus, we think it’s instructive to look at AAPL’s supply chain and demand exposure to China. On a Supply basis – AAPL has a sizable % of manufacturing and component procurement done in China (381 out of the ~775M manufacturing/supply locations are in China). In fact, out of the 381 manufacturing/component facilities in China across AAPL’s supply-chain base – 2 of the sites are in Wuhan, 0 in other 9 cities in lock-down and 69 sites are in Suzhou. Wuhan is considered to be the epicenter of the Coronavirus. While Suzhou is not in lockdown it’s a sizable manufacturing base for AAPL and others – and the city recently extended their holiday shutdown by one extra week to Feb 8th.
On the demand front, we estimate ~20% of AAPL revenues are China centric – while it’s impossible to gauge the revenue impact and if AAPL decides to take a more conservative stance on expectations or provide a wide range of forward expectations. Worth noting past dynamics like HK strikes did not impact AAPL’s guide or earnings at least explicitly.
Net/net: So far AAPL only has 2 supplier sites (both have alternatives) across the 10+ cities in lock-down, so the impact appears manageable from a supply perspective. The impact of demand and how AAPL incorporates this in their guide remains to be seen. Our bullish thesis remains intact – which is driven by AAPL’s ability to sustain mid-single digit sales and mid-teens EPS growth more driven by monetization of the iPhone install base vs. iPhone unit growth.
Maintains Outperform rating and $360 price target.
My take: Having written and edited more Chinese virus stories than I care to count, I can assure you with some confidence that this too will pass.