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Apple is revising its quarterly guidance downward not just a as a result of lowered sales in China because of the coronavirus, but also because of production problems in the country that are just now starting to be overcome.
Apple issued a statement on Monday afternoon, saying that it does not expect to meet the guidance it provided for the existing fiscal quarter.
As the public health response to COVID-19 continues, our thoughts remain with the communities and individuals most deeply affected by the disease, and with those working around the clock to contain its spread and to treat the ill. Apple is more than doubling our previously announced donation to support this historic public health effort.
Our quarterly guidance issued on January 28, 2020 reflected the best information available at the time as well as our best estimates about the pace of return to work following the end of the extended Chinese New Year holiday on February 10. Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.
The first is that worldwide iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated. The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues. These iPhone supply shortages will temporarily affect revenues worldwide.
The second is that demand for our products within China has been affected. All of our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been operating at reduced hours and with very low customer traffic. We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can. Our corporate offices and contact centers in China are open, and our online stores have remained open throughout.
Outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.
The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary. Our first priority — now and always — is the health and safety of our employees, supply chain partners, customers and the communities in which we operate. Our profound gratitude is with those on the front lines of confronting this public health emergency.
Apple's guidance for the second fiscal quarter of 2020
Apple was forecasting revenue for the second fiscal quarter between $63 billion and $67 billion for the first fiscal quarter of 2020, with gross margin pegged between 38% and 39%. Operating expenses were expected to hit between $9.6 billion and $9.7 billion, while a tax rate of approximately 16.5% is anticipated.
At the time, Apple said it gave a wider than normal range because of the then-new coronavirus epidemic. As of yet, Apple has not provided a new revenue guidance range, and based on the commentary Apple has issued so far, it may not.
Apple last updated its revenue estimates over a year ago. It altered its first-quarter fiscal year 2019 revenue estimates because of a poor business climate in China. As of the first quarter of 2020, that had recovered and it is unclear what long-term impact the coronavirus may or may not have for the remainder of the fiscal year.
Apple and coronavirus impacts
The coronavirus is a major global issue, with many companies having to mitigate the effects of the spread for themselves as well as meeting the demands of government agencies, while simultaneously having to plan and implement alternative ways to manufacture goods. As one such major entity, Apple is keenly aware of the potential damage the virus can cause to its bottom line.
Apple's suppliers, such as major Apple assembly partner Foxconn, have used initiatives such as requesting employees stay away from work as part of an extended Lunar New Year holiday period and keeping factories closed, in part through Chinese government demands. It is unclear when Foxconn will be up and running, but even so, it may be some time before it operates at full capacity.
In China, the country worst affected by the outbreak, Apple closed all of its outlets in the region as a precautionary measure, and has only recently started to open some of its stores in Beijing.