Needham lowered its March-quarter revenue estimates for Apple by 13% Tuesday based on coronavirus-related supply chain bottlenecks and lower demand from China. Greater China generated about 15% of Apple’s December quarter revenue and typically is 15-20% of the company’s sales. Apple’s Feb. 17 revenue-forecast downgrade (see 2002180004), plus new coronavirus "hot spots" in Italy, Iran and South Korea, "suggest that lowering our AAPL estimates is the more prudent choice,” said analyst Laura Martin. She now assumes normal supply and demand will resume by June 1, not March as she previously assumed. The longer coronavirus disruptions continue past the first of June, “the greater the threat to AAPL's Sept new product launches (including its 5G phone) and Christmas selling season revenue, which represented about 32% of annual revs in each of the past 3 years,” she wrote investors. Needham’s estimates assume coronavirus disruptions -- including supply chain and demand weakness -- don’t affect the September or December quarters: “This assumption may prove too optimistic,” said Martin. Due to low inventories and supply chain disruption, Needham lowered March and June estimates for unit sales of AirPods and iPhone 11s; it also expects a delay in the launch of the rumored, smaller iPhone, the SE 2, “from its originally scheduled March Q launch.” Apple hosts an event on March 31 but didn't comment now. Monday, HP said the virus is affecting it, too (see report, this issue.)
Coronavirus-induced travel and transportation restrictions that persist beyond March “are likely to pressure global supply chains and potentially create worldwide economic fallout,” said a Congressional Research Service report Wednesday. “Measures to contain the outbreak have significantly curtailed domestic and global transportation links, preventing the transport of many products and manufacturing inputs,” it said. Production has slowed across China, with “sharp slowdowns in sectors concentrated in Hubei,” including LCD panels, it said. Sourcing that diversified to other parts of Asia after the Section 301 tariffs on Chinese goods “often depends on intermediate inputs from China and thus is not insulated from China’s production slowdown,” it said.
Best Buy is “far from immune” from the negative impact of Chinese factory closures due to the coronavirus outbreak’s toll on the global retail supply chain, Wedbush Securities analyst Michael Pachter wrote investors Thursday. Though Best Buy reduced exposure to Section 301 tariffs implemented on electronics imported from China last year -- “as several small and relatively nimble companies moved their US-bound manufacturing to other countries” -- some of its largest partners weren’t able to divert manufacturing from China “and will feel the full brunt of the factory closures.” The retailer can mitigate the impact of supply chain disruption in TVs by pushing 55-inch and larger models manufactured in Mexico, Pachter said. Maintaining a “neutral” rating on the stock, the analyst applauded Best Buy for achieving “difficult financial targets” and setting long-term targets “within the realm of possibility.” Near term, he cautioned of the 2020 supply chain disruption “as Chinese factory closures appear likely to persist through Q1.” Wedbush expects Best Buy to post Q4 revenue next week of $15.19 billion vs. analysts’ consensus of $15.06 billion and the retailer’s guidance of $14.75 billion-$15.15 billion. It expects domestic Q4 comparable sales growth of 2.7% year on year, driven by appliance sales growth through the In-Home Advisor program and services via Total Tech Support. Pachter expects “some growth” in home theater in Q4 because over-55-inch TVs produced in Mexico weren’t subject to tariffs.
The NAB Show will go ahead “as planned” April 18-22 in Las Vegas, despite the coronavirus outbreak, said the association Wednesday. NAB “is prepared to devote whatever resources necessary” to enable a “safe and productive” show, it said. It’s following all World Health Organization and Centers for Disease Control and Prevention “guidance” and “recommended safety measures," it said. It opened a coronavirus “resource page” to give updates, it said. It’s also working with China-based exhibitors and registered attendees “to evaluate options for those unable to attend due to travel restrictions,” it said. Chinese visitors were less than 2% of the registered attendance at the 2019 show, it said.
Apple reined in guidance for fiscal Q2 earnings Monday, saying the pace of return to normal work conditions in China after the extended Chinese New Year holiday is slower than anticipated. It didn’t provide a revised guidance range in its investor update on the ongoing coronavirus situation. On its Jan. 28 earnings call, Apple guided (see 2001290026) to March quarter revenue of $63 billion-$67 billion. IPhone supply will be “temporarily constrained," said the company Monday. Though manufacturing partner sites, which have reopened, are located outside the Hubei province, “they are ramping up more slowly than we had anticipated.” The iPhone supply shortages will temporarily affect revenue worldwide, it said. In addition, demand for Apple products within China has been affected, and all Apple stores in China, plus many partner stores, have been closed. Those that are open are operating on reduced hours with “very low customer traffic.” Earlier this month (see 2002060054), Nikkei Asian Review reported that three AirPods suppliers were facing shortages of materials and components from coronavirus-forced plant shutdowns in China. The Feb. 7 report said suppliers had a maximum two weeks’ supply of components for assembly. Apple had ordered suppliers to produce up to 45 million units of the true wireless headphones in first half 2020 to keep up with surging demand, it said. Tuesday, Apple.com showed a delivery date of March 19 for AirPods Pro. The Monday update said Apple is “gradually reopening our retail stores and will continue to do so as steadily and safely as we can.” Apple's corporate offices and contact centers in China are open, and online stores have remained open, it said. The situation is “evolving"; the company will provide an additional update on its April earnings call. Shares closed down 1.8 percent Tuesday to $319.
Following last week’s cancellation of MWC 2020 due to concerns over the coronavirus (see 2002120056), CTA’s message about CES Asia, set for Shanghai June 10-12, hasn’t changed, a spokesperson emailed Tuesday. “Our focus is on the needs of our Chinese colleagues, customers and friends during this health emergency,” CTA said in response to questions on whether any exhibitors have canceled or about possible contingency plans for the event, which happens about 500 miles east of Wuhan. CTA “will continue to monitor the situation and share updates about CES Asia 2020 in a timely manner,” said the spokesperson.
Recent design wins, a higher proportion of software content, opportunities in new markets and potential for recurring revenue are positives for Universal Electronics, Inc. (UEI) wrote Dougherty & Co. analyst Steven Frankel in a Tuesday investor note before the company’s Thursday earnings report. That’s despite a 15 percent retreat for the stock over the past few weeks, likely due to coronavirus worries, with 40 percent of the company’s manufacturing based in China, said Frankel. Universal is “still in the early innings of a powerful product cycle,” he said, maintaining a “buy” rating on the stock. Questions remain, though, including the impact of the “fluid” coronavirus situation on the supply chain. Dougherty sees opportunity in emerging subscription broadcast-provided platforms such as Comcast Flex, with MVPDs appearing to be readying over-the-top devices aimed at the growing base of internet-only subscribers, said Frankel, citing Flex’s use of a voice remote supplied by UEI. The analyst also referenced UEI’s new security offerings launched at CES aimed at the hospitality space.
The coronavirus outbreak will have “a greater impact on the overall economy than the SARS outbreak in 2003,” said IDC Tuesday. The research firm expects “significant impact” on the information and communication technology (ICT) market in Q1 vs. the overall Chinese economy, “and its impact on hardware and consumers will be greater compared to software and businesses." The top five industries significantly affected by the outbreak are hospitality and food services, tourism, wholesale and retail, transportation and manufacturing. The digital economy enabled by ICT accounted for 37.8% of China's economy in 2019, IDC analyst Kitty Fok. As a result of the outbreak, IDC expects the ICT market to fall a record 10% in Q1, with at least a 30% drop for PC and smartphone sales and more than a 15% fall for server, network and storage sales. Artificial intelligence and big data will be affected as well but will continue to grow, while emerging technologies such as IoT and security will experience minimal declines, said Fok.