On its earnings call last week, Apple that the evolving coronavirus crisis introduces some unpredictability into the company’s financial outlook. And that was immediately apparent. On the call last Tuesday, CEO Tim Cook said Apple had closed one store in China. But by the end of the week, the company had temporarily shut down all of its China facilities.
“Out of an abundance of caution and based on the latest advice from leading health experts,” Apple (ticker: AAPL) said in a statement released Friday, “we’re closing all our corporate offices, stores and contact centers in mainland China through February 9. Apple’s online store in China remains open. We will continue to closely monitor the situation and we look forward to reopening our stores as soon as possible.”
While many analysts say the impact of the virus on Apple should be limited, investors should worry more about the iPhone supply chain than near-term retail sales, according to Deutsche Bank’s Jeriel Ong.
Ong writes in a research note Monday that while overall the coronavirus issue continues to gain importance to the company, the size of the financial impact from the shuttering of their China retail stores is likely to be “relatively minimal.” Apple has 42 stores in China, and he estimates that a week of closures would imply just $40 million to $50 million in lost sales. (Let’s put this in perspective: Apple had overall December quarter sales of $91.8 billion—that’s about $1 billion a day, or roughly $40 million an hour.) Additional activity in the App Store—as people stuck at home download more games and other apps—could offset some of those sales, he notes.
The bigger cause for concern is the supply chain. “The real question to us is whether channel inventories work down materially, should production plants of Apple’s semiconductor components or Foxconn’s own plants be disrupted in any material way in the coming weeks,” Ong writes. “To us, it’s too early to call shortages of iPhone parts, but in reality, disruption to any single part of the supply chain could impact Apple’s ability to maintain their inventories even if the rest of the chain is working as planned.”
For now, however, the stock should be low-risk when it comes to the virus, other analysts say.
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Apple had said its relatively wide March quarter guidance range of between $63 billion and $67 billion in revenue reflects the potential effects of the virus. Evercore ISI analyst Amit Daryanani writes in a research note that by adjusting their outlook to reflect the risk involved in the virus, Apple has become “one of the more de-risked” China-affected stocks.
Wedbush analyst Daniel Ives wrote in a research note over the weekend that there is a possibility that sales of up to 1 million iPhones could be shifted out of the March quarter and into the June quarter. But he adds that “with the vast majority of sales online we view a one-week closure of Apple stores as having a negligible impact thus far despite the scary and concerning headlines from the region.”
Adds Ives: “While the coronavirus outbreak is a sad situation and concerning headline for investors, for the stock we believe the fundamental impact from this issue to Apple’s top-line is negligible.” He maintains his Outperform rating and $400 target.
Apple stock was up 0.8%, to $311.96 in recent trading.
Write to Eric J. Savitz at eric.savitz@barrons.com
https://www.barrons.com/articles/apple-coronavirus-risk-iphone-supply-chain-51580756045
2020-02-03 18:54:00Z
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