China is the base of manufacturing operations for most tech companies, including Apple. With the spread of the coronavirus, Chinese manufacturing facilities look set to be shut down for a bit longer than they were already shut for the Chinese New Year holiday. Investors are now starting to worry about the effects the coronavirus outbreak will have on the iPhone supply chain.
Apple released its earnings results this week, and along with those results, it issued wider-than-usual guidance to account for effects on its supply chain from the coronavirus. Apple guided for $63 billion to $67 billion in revenue for the March quarter, which is more than consensus had been expecting but also a broader range than what Apple management usually provides.
During a conference call about the latest earnings results, CEO Tim Cook said they are already working on measures to make up for shortages in production, especially in Wuhan, the epicenter of the coronavirus outbreak. Some of Apple’s suppliers are also located in Wuhan, although Cook said all of the suppliers that are in the city are “alternate sources.” He also said they’re “working on mitigation plans to make up any expected production loss.”
“We factored our best thinking in the guidance that we provided you,” he said on the conference call. “With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time.”
Cook also said on the earnings call that some of the factories will stay closed until Feb. 10, which the Chinese government had recommended.
Analysts from multiple firms have expressed concerns about the impact the coronavirus will have on Apple’s supply chain. In a note seen on Wednesday by CNBC, well-known Apple analyst Ming-Chi Kuo of TF Securities warned that the coronavirus could also have a negative impact on demand for Apple products in China. He said consumer confidence in the country has declined as the coronavirus has spread, and as a result, he expects smartphone shipments there to decline.
Specifically, he’s worried about supply and demand for the Apple products that are expected to be released in the first half of this year. Specifically, he mentioned the high-end Bluetooth headphones the company reportedly planned to release this spring, in addition to a wireless charging mat and a tracker tag that can be attached to items that are lost easily. If he’s right about the wireless charging mat, it would be a surprise because the company canceled the previous charging mat last year.
Other products Kuo believes could be delayed are a new 4.7-inch iPhone with LCD screen and new MacBook Pro and iPad Pro models. Bloomberg also reports that the new less expensive iPhone model, believed to be called the iPhone 9, could be delayed. The news outlet reports that Apple had been planning to start mass production of the less expensive model in February.
Kuo noted also that many people in China are wearing face masks, and Face ID won’t work when the user is wearing a face mask, which will degrade the user experience.
Apple’s iPhone supply chain plans
Citing sources familiar with Apple’s supply chain plans amid the coronavirus outbreak, the Nikkei Asian Review reports that the company has asked its suppliers to make up to 80 million iPhones in the first half of this year. That would be a 10% increase from the 2019 production schedule, and it could increase the near-record high Apple stock price.
The news outlet also reports that the company has booked orders for up to 65 million iPhones, most of which are from the iPhone 11 line-up. It adds that Apple has also booked up to 15 million orders of the less expensive model it reportedly plans to reveal in March.
However, the members of the iPhone supply chain is concerned about the impact the coronavirus outbreak will have on their ability to fill all those orders. Chinese officials have locked down Hubei Province, further restricting travel in the country.
