Feb 18, 2020 - Health

Apple's coronavirus warning foreshadows broader threat for tech

Illustration: Aïda Amer/Axios

A warning from Apple on Monday that it would not meet its quarterly earnings forecast shows how quickly the coronavirus is creating real problems for the tech industry.

Why it matters: The virus is still in what could be the early stages and is already stressing supply chains and causing conference cancellations.

Driving the news:

  • Apple warned Monday that the virus is limiting iPhone production and hurting demand within China for all of its products. The company said revenue would be less than its prior forecast, but declined to offer a new prediction.
  • Nvidia cut its quarterly revenue forecast by $100 million, citing the impact of the virus.

Between the lines: Apple may be unique among U.S. tech companies in also counting on China for a large chunk of sales, but the slowdown in production is likely to be felt by a wide swath of the industry, which relies heavily on China for production. Apple and other firms had already said this quarter would be hard to predict given uncertainties resulting from the virus.

Threat level: It's still too soon to forecast how large the impact will be, but there are lots of reasons to imagine it will be significant, even assuming the outbreak doesn't get worse. China has one of the biggest economies in the world and is responsible for even more of the world's tech production.

  • As Apple said in its statement and the Financial Times reported last week, even as Chinese manufacturers are returning to work, they are doing so in a phased manner.
  • Startups and smaller hardware makers could be hurt worse, as larger companies will get priority in a capacity crunch at contract manufacturers.

What they're saying: Lots of experts predicted more companies will be forced to lower short-term financial forecasts due to the virus.

  • "Apple is the first but won't be the last company to pre-announce they'll miss their quarterly numbers," tech industry veteran Dare Obasanjo said in a tweet. "Pure software companies may avoid impact via remote work but any manufacturing or retail dependent on China will take a hit."
  • However, longtime industry watchers also predicted that the virus may also become an easy scapegoat for companies with other business shortcomings.

Meanwhile: Concerns about the spread of the virus are having a big impact on industry gatherings around the globe.

Go deeper: Economists warn coronavirus risk far worse than realized

Go deeper

Microsoft and other tech firms sound alarm over coronavirus impact

Illustration: Aïda Amer/Axios

More companies are saying publicly that disruptions caused by the coronavirus are hitting their bottom lines. Microsoft warned Wednesday that its personal computing unit, which includes Windows and Surface, will likely miss revenue expectations due to a slower-than-expected return to production after the Lunar New Year.

The big picture: Although Apple was the first big tech company to warn of a financial impact from the outbreak, most industry watchers said they expected the impact to be felt broadly across the industry, which depends heavily on China for manufacturing.

Coronavirus hits China's tech manufacturing production across the board

Photo: Feature China/Barcroft Media via Getty Images

The novel coronavirus outbreak in China is affecting nearly every sector of tech manufacturing, leading analysts to reduce production estimates for everything from TVs and smartphones to laptops and video game consoles.

Why it matters: Apple's earnings warning on Monday was a wake-up call for investors, but the virus' impact will be felt farther and wider.

Coronavirus dents tech's supply chain

Illustration: Sarah Grillo/Axios

The novel coronavirus has just begun to shut down offices and public gatherings across the U.S., but its impact on hardware and components production in China started weeks ago, and the flow of goods out of China's factories has been slow to recover.

Why it matters: The global tech economy's just-in-time supply chain has never faced a disruption quite like this one. And while many observers are guardedly optimistic, no one knows for sure yet how this crisis will play out or what sorts of shortages the industry might still face.