Apple beat expectations on fiscal first quarter earnings, but the spread of coronavirus could put a damper on second-quarter results.
Shares of Apple (NASDQ:AAPL) were hit hard this week over coronavirus fears. Many believed the illness, along with the massive quarantines enacted in response, would disrupt the iPhone maker’s short term sales.
Apple’s stellar fiscal first-quarter results put many of those concerns to rest. The company dramatically outperformed expectations on both the top and bottom lines.
Is it time for investors to celebrate? Not so fast.
The coronavirus crisis only started ramping up near the end of December, with human-to-human transmission confirmed on Jan. 20 and quarantines beginning shortly thereafter. Because of this, the full impact of the illness will be found in Apple’s fiscal second quarter, which began after Dec. 28.
It’s no secret that Apple is hugely dependent on China – especially for its iPhone supply chain. Pretty much all iPhones are made in China through Apple’s local partner, Foxconn Technology group. According to the South China Morning Post, Apple is scaling up to begin mass production of the new, low-cost iPhone SE 2 in February and experts believe supply disruption is a major concern due to the coronavirus epidemic.
Dan Ives of Wedbush Securities states the following:
Supply chain disruption is a worry if employees across Foxconn and other component manufacturing hubs in China are restricted. If the China outbreak becomes more widespread, it could negatively impact the supply chain which would be a major investor worry.
Patrick Moorhead of Moor Insights & Strategy takes a bearish tone. He states:
I can’t imagine a scenario where the supply chain isn’t disrupted. If there’s one major hiccup in the raw materials, fabrication, assembly, test, and shipping, it will be a disruption.
On top of the supply chain concerns, the Wuhan coronavirus may affect demand for Apple products in China. China is one of Apple’s most important growth markets, with sales in the country only surpassed by the United States itself. As the coronavirus spreads, it could put a damper on consumer discretionary spending and drag the Chinese economy down.
Regardless of the threats, Apple’s fiscal first-quarter results were unexpectedly good. The company posted quarterly revenue of $91.8 billion, a 9% jump from year-ago levels and a record for the company. Bottom line numbers were also stellar with earnings per share jumping 19% to $4.99 per share.
Management used the earnings call as an opportunity to discuss coronavirus fears. CEO Tim Cook even revealed that Apple has suppliers in the hard-hit Wuhan area. He goes on to state that the company has limited travel to business-critical situations. Nevertheless, Apple is guiding for revenue between $63 billion and $67 billion in fiscal Q2.
While the company is optimistic about year-over-year sales growth, a downward revision may occur if the coronavirus outbreak intensifies.
Disclaimer: The views expressed in this article should not be considered trading advice from CCN.com.
This article was edited by Sam Bourgi.