You’ve been warned: Apple will miss its Q2 guidance

The novel coronavirus will hit Apple—and soon enough, Apple shareholders—where it hurts.

From Apple’s press release: “Investor update on quarterly guidance“:

Our quarterly guidance issued on January 28, 2020 reflected the best information available at the time as well as our best estimates about the pace of return to work following the end of the extended Chinese New Year holiday on February 10. Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.

The first is that worldwide iPhone supply will be temporarily constrained. 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… These iPhone supply shortages will temporarily affect revenues worldwide.

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.

Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.

The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary.

[Multiple expressions of concern for those affected have been removed.]

My take: Here we go again. Last time, in 2018, Apple turned out to be the canary in a coal mine that took the whole U.S. economy down.

21 Comments

  1. Gianfranco Pedron said:
    Great! Time to buy more AAPL.

    Hoping for five to ten percent discount.

    5
    February 17, 2020
  2. Bart Yee said:
    My estimation would be since Apple said they won’t reach guidance of $63-67 billion, then my guess is $57-61B, a 10% drop overall.

    Apple’s statement says worldwide demand still is quite good so we’re primarily concerned with constrained production and supply, delaying sales, and decreased China demand, which may have a 1-2, maybe 3 quarter hangover. Both still have to play out with respect to slowing down and stopping the Coronavirus event locally in China.

    2
    February 17, 2020
  3. Steven Noyes said:
    Sounds like a BUY opportunity. Everyone knew this was coming and AAPL will see a -10% or so hit then a massive pop the next quarter.

    2
    February 17, 2020
    • David Baraff said:
      Damn it! I may have to go any buy options again. Just when I was convinced AAPL was so high that it didn’t make sense to risk it, ever again.

      AAPL (options) I wish I could quit you…

      0
      February 17, 2020
  4. David Baraff said:
    Here’s another datapoint: my fencing club ordered some aluminum sheet metal from a factory in China (approx 500-600 miles away from Hubei province). I was in regular email contact with them regarding the order, until the Chinese New Year began on January 9th, and since then I’ve had no contact. I would have expected email to resume around the beginning of February.

    It is now February 16th, and no email from them. When I finally hear from them, I’ll take it as a sign that manufacturing has indeed begun to restart. I think it really is a lot more dire over there (in terms of restrictions) that is commonly realized.

    0
    February 17, 2020
  5. Fred Stein said:
    As I’ve said before on this topic, it defies prediction. Tim Cook’s honesty, and Apple’s performance over the years, will reduce the impact on AAPL. While smart investors know that no sales are lost, just deferred, the FOMO investors will bolt, creating trading opportunities.

    Other companies that have not earned investor trust, may be more impacted. We may see a ripple effect since other assets are priced to perfection.

    5
    February 17, 2020
    • Jerry Doyle said:
      @Fred Stein: I agree deeply with your sentiments relative to the integrity and honesty of Tim Cook to address this issue head-on with shareholders and the public. When one knows that they are dealing with an honest CEO with integrity, and one who does not come out and use a bunch of euphemistic phrases like some politician trying to ameliorate matters with words (but just be up-front) then it gives me much confidence and trust in our executive leadership at Apple.

      2
      February 17, 2020
  6. Gregg Thurman said:
    The greatest impact to revenue will come from reduced consumer purchasing in Hubei province and the slow return to full production capacity. It is important to remember that normal production during the March quarter is historically about 30% below December quarter production, so Foxconn has the capability to ramp production rate to a point higher than the March quarter would have been pre-coronavirus. How much of that ramp can be achieved before the end of the period is unknown at this time. My point is that the June quarter will most likely be unaffected by all of this.

    The Australian exchange had Closed before Apple’s announcement and was down 1.25% as I write this. Tokyo Opens in about 20 minutes with Hong Kong, Shanghai and Beijing following an hour later. Frankfurt Opens about 7 hours from now, with Paris and London following an hour later. We should be well informed as to how US indexes are going to respond in Pre-market trading (with much of it coming from the European exchanges).

    I’m not expecting more than a 2% decline until AAPL issues its revised guidance. That should come tomorrow.

    2
    February 17, 2020
  7. Jerry Doyle said:
    Apple took a hit in the winter of 2018-2019 around 39%. As I recollect, we were around $232 and the share price plummeted to an intra-day low of $142 on the trade tariffs. I see no less this time around. Why? From all evidence, we do not know definitively that the coronavirus is “contained.” Everything that I am reading says most Chinese still are quarantined in their homes, having food and drinks delivered to them from outside restaurants.

    The CCP has ordered China banks to sterilize cash in an attempt to stop the coronavirus spreading. In the meantime, banks only can release new printed bills.

    Chinese authorities continue canceling all major gatherings. Organizers of China’s annual car show scheduled for late April are delaying the event farther out, due to the outbreak.

    Apple last year was the “canary in the coal mine.” Once Apple announced its’ projected revenue miss, then all other companies with exposure to China started announcing their reductions in guidance.

    I believe that Apple will make up its’ loss sales. Companies like Starbucks, that has closed all its stores (over 2,000), will not make up their loss revenues.

    The news media is projecting that the coronavirus could impact 5,000,000 companies worldwide, according to the latest business research from firm Dun & Bradstreet.

    The Chinese provinces most impacted by the virus are linked intricately to the global business network. News media are saying that the affected areas with 100 or more confirmed cases as of February 5 are home to more than 90% of all active businesses in China. The report goes on to say that around 49,000 businesses in these regions are branches and subsidiaries of foreign companies.

    In summary, this is a propitious time to buy more Apple shares. Last year when the share price plummeted from around $232 I entered a little too early at $185 and $179. If I had been patient, I could have waited to the stock started bottoming in the $140s range.

    My take: grab as much discretionary money you have available and get prepared to buy additional Apple shares. We know that Apple most likely will make up this temporary revenue loss.

    2
    February 17, 2020
  8. Gregg Thurman said:
    Because the smart money will have figured out that the June quarter will be largely unaffected by Apple’s warning I don’t foresee an especially large selloff (share volume). Sellers will mostly be those hedging their bet or more likely uninformed and reacting emotionally.

    1
    February 17, 2020
  9. David Baraff said:
    If someone could be so kind as to notify me when we hit the bottom this time around, I’d greatly appreciate it.

    Just post a note with my name on it in the comment section that day, and I’ll see it.

    Thanks.

    2
    February 17, 2020
    • David Drinkwater said:
      Everyone’s a comedian.

      1
      February 17, 2020
      • David Drinkwater said:
        This was intended as a reply to Baraff, but apparently misfired.

        0
        February 17, 2020
  10. John Konopka said:
    Presumably we’ll hear more about this at the shareholder meeting February 26, next week.

    I’m going. Anyone else?

    0
    February 17, 2020
    • David Drinkwater said:
      I dunno how the hell to get an invitation. Insights?

      0
      February 17, 2020
      • John Konopka said:
        When you got your proxy statement there was a link to register. Registration opened Feb 4 at 8:00AM Pacific time. There are only about a thousand seats so this usually ends in a minute or two. This year there was some server problem. Registration started about 45 minutes late.

        You could try contacting investor relations and see if they have any cancellations.

        0
        February 18, 2020
    • George Ewonus said:
      Hi John. I will be there.

      0
      February 18, 2020

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