Apple reopens more stores in China as the iPhone outperforms the competition
The China Academy of Information and Communications Technology released data today showing that smartphone shipments in China declined 37% from last January. According to Bloomberg, UBS analyst Timothy Arcuri expects smartphone shipments to continue heading south after the Chinese government tallies the deliveries made this month. Writing to UBS clients, Arcuri said, "February numbers are likely to be far worse due to both supply and demand issues related to the virus outbreak." The outbreak he is referring to, of course, is the coronavirus which continues to spread."
Apple's contract manufacturers in China like Foxconn and Wistron shut down production lines and are slowly reopening them. Apple also closed all 42 of its Chinese retail locations although 29 of them are now open for business once again. Still, those stores that are open are keeping the lights on for only 8 hours a day instead of the 12 hours that the stores are open for during normal times. Apple CEO Tim Cook recently told company employees that Apple Stores in the country are "starting to reopen, but we are experiencing a slower return to normal conditions than we had anticipated."
Apple rose its iPhone shipments in China by 5% in January on a year-over-year basis
UBS' Arcuri also told clients that iPhone shipments in China declined 28% last month on a sequential basis. That is typical because the holiday shopping season comes to an end in January. But the note to the securities firm's customers pointed out that the month-to-month drop was a "bigger decline than usual for that time of year." Apple itself has confirmed that the coronavirus has impacted its global iPhone business since it hasn't been able to produce as many units as planned. Demand for the device in China has been hurt as all attention in the country has turned to the virus. However, as we told you earlier today, sales of the iPad and other tablets are soaring in China. Workers are being told not to come into the office and are working from home. Children are having their school lessons streamed over tablets.
Apple iPhone sales in China had been hurt by the closing of all 42 Apple Stores in the country
While Chinese iPhone deliveries in January declined 28% from the month earlier, year-over-year iPhone sales actually rose 5% in the country from January 2019 to January 2020. Remember, overall shipments in China declined 37% over the same time. Arcuri says that the iPhone outperformed the competition in the world's largest smartphone market because of its online stores. Additionally, Apple didn't have to deal with trade war issues as much this January as it did during the same period last year.
When Apple released its fiscal first-quarter 2020 earnings at the end of January, it estimated fiscal second-quarter revenue in a range of $63 billion to $67 billion. Usually, Apple gives a more precise estimate but cited the uncertainties of how much the coronavirus would affect Apple for the wider range. However, a week ago the company admitted that revenue for the three-month period that includes January through March will fall short of the low end of that range. Most of the damage is occurring in China; outside of that market, Apple says that sales of its products and services have been meeting its expectations and characterized demand as "strong to date."
But the truth is that as long as the disease continues to spread throughout the world, the global economy is going to slow down. As we said, China is the world's largest smartphone market (India is second) and when that region gets sick, it has repercussions throughout the industry worldwide. And if the stock market is an indicator of future events, the big hit taken today by Apple (which dropped 4.75% in regular trading on Monday) could be a sign that the coronavirus has much more damage to do in the months ahead.
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