Apple press release:
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
Neither of these things should be a surprise. Surely all consumer electronics companies with a manufacturing dependency upon China are affected similarly. For a U.S. company, though, Apple is unique in terms of its retail presence in China. Update: The issue with iPhone suppliers, I know nothing about. But I think Apple itself should have foreseen the decrease in Chinese consumer demand from this outbreak back on January 28. It seems like Apple’s executives actually believed what the Chinese government was saying about this outbreak and based their sales guidance on it.
The other factor I’ve been thinking about is how this outbreak might be affecting the development of future Apple products. Apple’s guidance here is solely about quarterly revenue for this January-March quarter. But Apple employees need to travel to China every day. Remember a year ago, when United Airlines accidentally leaked that Apple was their biggest client, spending $150M a year, including 50 business-class seats to China every day. What I wrote then:
50 seats a day between SFO and Shanghai is just a jaw-dropping
number. That’s 25 Apple employees flying home and another 25
heading over every single day.
It’s possible that Apple just has a standing order for those
seats, and some days they go unused by Apple employees. But I’ve
heard from a few birdies who frequent the SFO-PVG route that “50
seats a day” undercounts the number of Apple employees making
this trip, because it’s only counting United. They fly other
airlines when those 50 seats are already full, and that’s not
uncommon. They also apparently fly a ton on Cathay Pacific because
it’s a nicer experience than United.
Those Apple employees who travel to China aren’t doing so for kicks. They have work to do there. Suppliers to meet, parts and prototypes and assembly lines to inspect. The final products are all stamped “Designed by Apple in California / Assembled in China”, but the connection between those two statements is not conducted remotely. It involves a lot of Apple’s own employees traveling to China. If that travel has been curtailed by this outbreak, it’s a problem — but a problem that has nothing to do with the next few weeks.
★ Monday, 17 February 2020