by Ian Harvey
March 10, 2020
Apple Inc stock dropped to $266.17, down -$22.86 or -7.91%; hitting a low of $263.00 in yesterday’s market. There is a potentially unprecedented drop in iPhone sales in China spurred on by COVID-19 fears, as well as the general market sell-off which suffered from an oil price war.
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According to Wedbush analyst Dan Ives, citing numbers from the Chinese government, AAPL has only shipped about 494,600 iPhones in February as its stores in China have been shuttered and manufacturing partners idle their factories following the outbreak. This is an enormous drop – approximately 60% - from 1.27 million units in February 2019 - which spells serious trouble in the near-term.
“These are doomsday type of iPhone units and overall smartphone sales which are not surprising given the essential lockdown that most of China saw during the month of February, with stores closed and the supply chain under massive pressure due to the coronavirus outbreak in the country,” Ives wrote in a note on Monday.
Since erupting in China in January, the Covid-19 epidemic has hit Apple’s supply and demand. Factories resumed work slower than expected and most of its 42 stores lay dormant for weeks, driving home the U.S. giant’s exposure to disruptions in the world’s No. 2 economy. While factories are gradually restarting after enforced quarantine, lingering production bottlenecks risk hurting global iPhone revenue in coming months.
Before Monday’s broad market sell-off, Apple Inc had lost $167 billion of its market value since notching a 2020 peak, underscoring the anxiety around the impact of the global epidemic.
Apple’s stock has lost 17% over the past month, as has the S&P 500. The Dow is off 18%.
The Trade at the Time.....February 28, 2020.....we wrote.....
“Shares of tech heavyweight Apple Inc. (NASDAQ: AAPL), a company that designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications, are suffering due to the coronavirus.
Apple Inc surprised analysts and investors earlier this week when it said that it wouldn’t meet its second-quarter revenue guidance as a result of the coronavirus.
That announcement caused a sell-off in chip stocks and left one firm concerned about the ramifications on one of the tech giant’s key suppliers.
Apple Inc. has a significant number of factories in China. Apple has 26 suppliers and four major corporate customers in China, making it more vulnerable to the virus than Microsoft.
Factories that manufacture iPhones and other Apple devices have been shut down for the time being, and the company has considered the possibility that the delayed production could cut into inventory availability throughout the year.
CEO Tim Cook named the outbreak as the reason for "wider-than-usual revenue range" of $63 billion to $67 billion in the company's guidance for its second quarter of fiscal 2020. On a call with market analysts, Cook said:
"We're working very closely with our team and our partners in the affected areas, and we have limited travel to business-critical situations as of last week. The situation is emerging, and we're still gathering lots of data points and monitoring it very closely."
In mid-February, Apple said that it no longer expects to meet its previously stated revenue guidance for the next quarter. The company's main revenue driver is the iPhone, and every week, it plans and executes the manufacturing, assembly, distribution and sale of millions of iPhones. With the outbreak continuing to slow or halt the production of key iPhone components, Apple is already feeling the pressures of a supply shortage.
Store closures in China may also cut into demand for the iPhone, which is a luxury smartphone. While in the U.S., the price difference between iPhones and other top smartphones is mostly insignificant, the price gap widens in the Chinese market, where an iPhone costs consumers about twice as much as a Huawei phone. Thus, economic slowdown may further reduce demand for the more expensive mobile device.”
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According to Wedbush analyst Dan Ives Apple Inc is sure to take a beating when it reports its Q2 earnings. However, the company, according to Ives, should be able to recover on the back of its upcoming product pipeline.
Specifically, a combination of millions of devices in the window of opportunity for upgrades, the potential for pent-up demand for the iPhone 11 caused by production shutdowns, and the upcoming iPhone 12, which is expected to be Apple’s first 5G iPhone, could result in a massive iPhone sales super cycle.
And, despite how grim things look for Apple Inc in the immediate future, the company’s next iPhone, set for a September launch, should be able to right the tech giant’s ship.
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