Apple says it won’t hit its Q2 revenue guidance of $63-67bn due to the Covid-19 outbreak in China. In warning in this way Apple has neatly summed up the knock to global growth stemming from both reduced output and consumption.
Firstly, how anyone is surprised by this is beyond me. Clearly there is going to be a hit to both output and consumption in the world’s second largest economy and the world’s growth driver. This is bound to hit earnings of companies exposed – Apple being the bellwether.
Most of Apple’s products are made in China, while the country accounts for about 16% of global revenues.
The $4bn spread in the original guidance was already as wide as a barn door, reflecting uncertainty at the time of the Q1 results at the back end of January.
The warning points to the two key ways the outbreak will impact growth. First output: Apple says iPhone supply will be constrained due to a slower ramp in production following the late return following the new year holiday. Two, consumption: demand for all products in China has been sharply hit.
Apple warned about China a little over a year ago and after the stock initially sold off, investors soon shrugged it off. I’d anticipate a similar reaction to this