Adam Simon, SVP, executive director of strategy at IPG Media Lab, nailed it earlier this month when he shared concerns with Media Daily News about Apple’s delay in setting up new production lines for upcoming products in China based on the coronavirus outbreak and quarantines.
Late Monday, Wall Street analysts began to release research notes and reduce Apple’s revenue and production forecasts for March and June quarters based on the company’s decision to reassess guidance from the impact of the virus.
“In the case of the June quarter we are assuming that effects are mainly supply oriented as expected new products like the SE 2 and iPad Pro potentially push out and Apple finds itself without enough inventory more broadly,” wrote analysts at Goldman Sachs Equity Research in a note published Tuesday. “On a positive note, we are increasing our unit volume expectations for both the September and December quarters this year as we equally assume that some lost early year demand materializes later as new devices launch.”
Some analysts are not so optimistic that the worst is over. Raymond James Analyst Aaron Kessler referred to the coronavirus outbreak as a “wildfire” burning in China. “The worst is yet to come,” Kessler wrote.
Wildfires, if not controlled, tend to spread fast and wide -- in this case beginning in one area like electronics and travel and moving to those closely related, such as production of new products that typically requires an advertising campaign running across search, display, or television.
Kessler's research note covers everything from the impact on China and the United States to the impact for the U.S. and the China trade war.
“We increase our likelihood of notable widespread cases in the U.S. from 1 in 7 to 1 in 5,” Kessler wrote. “We note many officials we speak with believe the likelihood is higher. In China, the time from initial virus introduction (we believe probably late November or early December) to reaching epidemic levels took between 7-10 weeks. That means we probably need to wait another 2-4 weeks before we can say we will not see a widespread outbreak in the U.S.”
Raymond James analysts believe the number of cases in China is much higher than officials report. Chinese officials report about 70,000 infected people, whereas analysts put that number at more than 400,000. Kessler follows the electronics industry supply chain, reporting on companies that supply good to hardware manufacturers like Apple.
Factories were scheduled to resume production by now, but reports suggest that many remain idle and closed.
The travel industry also has begun to feel the impact. Hilton reported 150 properties with 33,000 rooms are temporarily closed in China. Wyndham said up 1,000 hotels were closed, although many have reopened. “Both pointed to a potential 2% drag on EBITDA for the year, though a greater impact to the top lines,” Kessler wrote. “They assumed a 6-12 month period of impact.”