US tech firms feel the viral outbreak

The US tech industry response to the coronavirus crisis has moved beyond conference cancellations and a refusal to shake hands in meetings. Microsoft has joined Apple in declaring that disruption in China due to the viral outbreak would affect sales in the next quarter. Its “More Personal Computing” segment will fall short of sales guidance of $10.75bn-$11.15bn.

The world’s largest software maker may not look like an obvious victim of supply-chain problems but its personal computing business makes up more than a third of annual sales. Microsoft has had a boost from businesses upgrading to its Windows 10 operating system. But further upgrades may be delayed as PC makers struggle with factory work stoppages in China.

HP has warned that it has been affected by factory shutdowns. The US tech industry’s reliance on manufacturing and consumers in China, the source of the outbreak, puts it in a difficult position. Apple and Microsoft say manufacturing facilities are reopening but neither has offered to update sales estimates.

Quarterly guidance is a questionable endeavour at the best of times. Companies tread a thin line between leaving themselves plenty of wiggle room and offering enough instruction to keep a lid on share price volatility. It is gradually falling out of favour. The proportion of S&P 500 companies issuing quarterly guidance dropped from 36% in 2010 to 28% in 2018, according to US research group The Conference Board, which found that providing guidance had no impact on corporate valuations.

Microsoft is buttressed with $134bn in cash and shortterm investments. Sales in its fast-growing cloud business should not be affected by the coronavirus outbreak. Yet there is no way to know whether temporary disruption might become a long-term drag on profits for the wider tech industry. /London, February 26