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Mapping Apple's stores against coronavirus' spread in China


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Mapping Apple's stores against coronavirus' spread in China

Wall Street is raising concerns about whether the outbreak of coronavirus and related disruption will take a bite out of Apple Inc.'s iPhone production and sales.

Much of Apple's retail footprint in China remains closed through Feb. 9. In addition to the 42 stores Apple lists in mainland China, the company closed stores in Macao, and stores in Hong Kong are operating on reduced hours. Analysts generally expect Apple to recoup any lost sales over time, though a prolonged outbreak could lead to lower unit sales for multiple quarters. Regarding the supply chain, Apple CEO Tim Cook said in January that the company is looking into alternative sources to mitigate any loss of production.

"Apple users are very brand loyal," said William Ho, founder and principal analyst at the tech analysis and consulting firm 556 Ventures. He doubted that many Apple fans would cross to other mobile platforms due to a temporary supply disruption.

"The big question is, when the virus has been defeated, will there be pent-up demand to make up for the lost duration?" Ho said.

Wedbush Securities analyst Daniel Ives believes there will be.

"At most ~1 mm iPhones in the region could be at risk of shifting out of the March quarter into the June quarter if this continues into late February, which would be less than 3% of Chinese annual iPhone sales at most and a very containable risk," Ives wrote in a research note.

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Ives noted that online sales continue in many areas where retail stores are closed. Additionally, the most important part of the buying season in China in the March quarter, the lead-up to the Lunar New Year, occurred before Apple started closing stores in the region.

"While China is a major part of our bull thesis and growth story of Apple for the coming 12 to 18 months, we do not view the impact of this virus epidemic as changing the numbers/merits behind the renaissance of growth in China for FY20/FY21," Ives said.

Apple's net sales in Greater China totaled $13.58 billion for the quarter ended in December 2019, accounting for nearly 15% of Apple's overall sales in the period.

While Apple does not have any stores in Wuhan, the epicenter of the outbreak, or in the surrounding province of Hubei, the company does have some suppliers in that area.

Apple CEO Cook sought to address concerns about the supply chain during Apple's Jan. 28 earnings conference call. "We're obviously working on mitigation plans to make up any expected production loss," he said.

Apple forecast March quarter revenue between $63 billion and $67 billion, a range the company said was wider than usual due to uncertainty related to the unfolding public health situation in China.

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