Coronavirus Stifles Apple Revenue Guidance for Quarter
We still think it is likely any near-term shortfall will be made up in subsequent quarters.
On Feb. 17, Apple AAPL issued a press release that stated it no longer expects to meet its revenue guidance provided on Jan. 28 as the coronavirus (COVID-19) continues to threaten iPhone supply and demand. The firm’s two primary reasons for the expected sales shortfall included worldwide iPhone supply being temporarily constrained and lower demand in China. Although the firm’s contract manufacturing sites outside of the Hubei province (currently in full lockdown) have reopened, they are taking longer to ramp than Apple had anticipated. Meanwhile, Apple stores in China have been closed and partner stores that have been open had reduced operating hours with minimal foot traffic. Positively, customer demand for Apple’s products outside of China has been consistent with the firm’s prior expectations.
For the March quarter, Apple had previously expected sales in the range of $63 billion-$67 billion. We note that revenue from Greater China has averaged $11.4 billion over the past eight quarters. All in, we think revenue could be anywhere from $56 billion to $60 billion in the quarter, but the situation remains fluid, as evidenced by Apple’s own reticence in providing a revised guidance range. However, we still think it is likely any near-term shortfall will be made up in subsequent quarters (particularly with a 5G iPhone 12 set to launch in September). Consequently, we are maintaining our $240 fair value estimate for narrow-moat Apple. We continue to see shares as overvalued, as we believe the implied growth for the iPhone and services segments are too high.
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