Evercore: Of 381 Apple facilities in China, only 2 are in lockdown

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.

See also: Coronavirus impact on Apple is ‘containable’

6 Comments

  1. Gregg Thurman said:

    See my post under “Wedbush: Coronavirus impact on Apple is ‘containable’, I’ve done a bit of research trying to calculate the potential impact on Apple’s FQ2 results..

    Mine was an exercise in maximum negative impact. With Daryanani’s information, I’m now not sensing a material impact at all from all of this excitement.

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    January 27, 2020
  2. Fred Stein said:

    Good point. The H1N1 virus that originated in Mexico in 2009 seemed scary at first and killed an estimate 89 people. But it did not spread.

    For perspective, annual flu related deaths in the US, is in 10’s of thousands.

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    January 27, 2020
    • Jerry Doyle said:

      @Fred Stein: CDC’s official report of findings of deaths last winter in the USA from influenza was 80,000 Americans! Go figure. Did the US come to a halt? Business continued uninterrupted. Transportation, hotel, travel industry also not impacted.

      Am I missing something here? Can someone enlighten me?

      We lose tens of thousands of individuals annually through influenza related deaths in our country alone.

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      January 27, 2020
  3. Kirk DeBernardi said:

    @ Fred S. —

    Perspective? Is that generally available anymore?

    ; – )

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    January 27, 2020
  4. Peter Kropf said:

    “Am I missing something here? Can someone enlighten me?”

    Yes.

    Flu is relatively known and predictable. (It’s like death and taxes.)

    CV is unknown, new, and unpredictable. (It’s like ???????.)

    For movie fans: All those movies about scary viruses always end with a hero and a final victory. This isn’t a movie.

    For science fans: Things were going pretty good for dinosaurs about 64 million years ago.

    For history fans: What was it like the day before the bubonic plague hit?

    Not really trying to be a downer, but I find it amazing that people can so easily dismiss the (long tail) risk of the new unknown.

    1
    January 27, 2020
    • Jerry Doyle said:

      @Peter Kropf:

      Peter, in an earlier comment you stated, “…One reported characteristic of the virus is that it seems capable of contagion before symptoms of infection show (coughing, headaches,…).”

      You are correct in that statement above. Meanwhile, the coronavirus is prompting multiple industries and governments to recall their China workers home to their respective countries. Honda and PSA now are recalling their China workers back to Japan and France as are many other foreign companies. Governments are recalling their Consulates and Embassy workers back to their respective countries. These workers are returning to their respective countries, perhaps contagious, in the absence of symptoms. They commingle with family, friends and workers. Now the virus is spread farther and more quickly. Is this a prudent response to a “…risk of the new unknown,” as you denote?

      There is an over-reacted response happening in governments and industries to the current situation. As you say, “…CV is unknown, new and unpredictable.” So, one would think to isolate and contain the virus as China is doing.

      I wish the USA would do similarly with the flu. 80,000 Americans last winter died from influenza according to the CDC’s official report of findings. If we took similar measures making it “mandatory” for workers with fever, coughs, dripping noses to stay home and not come to work, board a plane, take a train, enter a shopping mall, etc., then we could save tens of thousands of Americans lives annually.

      To repatriate workers in China back to their respective countries in the absence of knowing definitively that those workers are not contagious is no prudent method for addressing the coronavirus.

      Am I missing something here, too? There is over-reaction by governments, by the press, by the media, by the markets, and by CEOs of companies and industries when no similar concern or precautions are taken annually in the USA to address 80,000 influenza deaths.

      These are not comments addressed to dismiss easily the risk of the known or unknown.

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      January 27, 2020

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