Global markets shudder as Apple sounds virus alarm
OIL PRICES FALL SHARPLY AS JITTERS ABOUT THE WORLD ECONOMY SPREAD
Stock markets around the world fell sharply yesterday after Apple said the new coronavirus was hurting its revenues and the supply of iPhones.
The surprise announcement fuelled investor fears over the damage the epidemic is inflicting on corporate bottom lines, as well as on global supply chains, manufacturing, tourism and retail sales.
Apple said it would miss its March quarter revenue forecast and global iPhone supplies would fall, sending tremors of dismay across trading floors. “Apple is the first but it certainly won’t be the last, or the most severely impacted,” said Craig Erlam, senior market analyst at
OANDA Europe. Apple shares fell three per cent at the opening.
Oil prices fell sharply as jitters about the world economy spread. Tokyo’s benchmark Nikkei 225 index saw its fourth straight session in the red, while Singapore stocks fell as
investors digested the government’s decision to cut its economic growth forecast for this year as the virus batters the city state’s tourism and trade.
Stephen Innes of AxiCorp said most analysts now predicted that the virus could “significantly”
affect short term earnings. “Best to buckle in as we could be in for a bumpy ride,” he said. The disease has now killed nearly 1,900 people and infected more than 72,000 in China since it first emerged in the central city of Wuhan late last year.
Chinese study findings
The market turmoil came as a study by Chinese researchers found that most people infected by the virus in China have mild symptoms, with older patients and those with underlying conditions most at risk from the disease. Some 80.9 per cent of infections were classified as mild, 13.8 per cent as severe and only 4.7 per cent as critical. The highest fatality rate is for people aged 80 and older.
Apple Inc’s surprise warning that it will likely fall short of this quarter’s sales target due to the coronavirus epidemic points to much pain for its chip and other suppliers as well as for rivals who also rely on China to build their products.
Revising guidance set just three weeks ago, the world’s most valuable tech company said while many factories that make iPhones have reopened for work, they were ramping up more slowly than anticipated.
‘EVERYONE HAS TO WAIT’
The outbreak, which has infected more than 72,000 and prevented many employees from returning to work due to travel and quarantine restrictions, was reverberating throughout the US firm’s supply chain, a source familiar with Apple’s operations in China said. “If one component factory stays closed and they’re the only supplier, then everyone has to stop and wait. And if there are two suppliers and one is shut down, then we need the other to do more,” said the source.
Stacy Rasgon, a Bernstein analyst, said Apple’s woes probably also mean fewer chips will be sold throughout the mobile device industry because the majority are made in China.
‘THIS IS A WAKE-UP CALL’
“Maybe this is the wake-up call. I would be astonished if Apple is the only one,” he said. “Every electronic supply chain runs through China in a big way.” Research firm Canalys estimates both Apple, which outsources much of its manufacturing to Taiwan’s Foxconn, and rival Huawei Technologies have 99 per cent of their production in China. The world’s No. 1 smartphone market is likely see sales halve in the first quarter due to the virus, analysts have said.
Roughly 10 per cent of Foxconn’s workers in China have resumed production, while other plants in the country remain largely shuttered. Foxconn denied the reports in a company filing without elaborating.
A SLEW OF SUPPLIERS
Shares of Apple’s chip suppliers fell on the news yesterday, with Samsung Electronics losing 2.8 per cent, Taiwan Semiconductor
Manufacturing Co (TSMC) down 2.9 per cent and SK Hynix shedding 2.9 per cent.
Analysts at ANZ noted Qualcomm Inc was vulnerable to disruptions caused by the epidemic as it supplies mobile modem chips to almost all major smartphone makers and generates nearly half of its sales from China. US-based suppliers that do a lot of business with Apple include Broadcom Inc, Qorvo Inc and Skyworks Solutions Inc.
Broadcom makes a range of wireless components for iPhones and said last month it had signed a deal to supply Apple for contracts worth as much as $15 billion. Sales to Apple accounted for 20 per cent of its annual revenue in fiscal 2019.
‘THEY ARE NOW STUCK WITH CHINA’
Qorvo, which sells parts that help phones connect to wireless data networks, generated around one third of its revenue from Apple in fiscal 2019. Other US suppliers to Apple include
Texas Instruments Inc. Its battery charging chips have been found in iPhone teardowns, although the company sells across a broad spectrum of the electronics industry. In Europe, suppliers include the Netherlands’ NXP Semiconductors and FrancoItalian firm STMicroelectronics.
Mike Fawkes, who previously ran supply chain operations for Hewlett-Packard, said even if it wanted to, Apple was unlikely to find alternative production sources soon. “They’re stuck with China for some period of time,” he said. “It’s very hard when you’re managing a big battleship like they are.”