Apple admits possible financial impact from coronavirus in China

Apple’s Q1 earnings for 2020 showed that some analysts’ predictions of decline may be untrue, but the coronavirus could impact manufacturing.

Apple is still reaping huge profits from the iPhone while mining more moneymaking opportunities from the growing popularity of its smartwatch, digital services and wireless earbuds. That combination produced a bumper season for a company whose fortunes appeared to be sliding just a year ago amid declining sales of the iPhone, its marquee product for the past decade.

Apple’s fiscal first-quarter results, released on 28 January, provided the latest proof that the fears hanging over the consumer electronics icon might have been unfounded. Apple’s profit and revenue for the October to December period topped analysts’ projections, providing another boost to a stock that has more than doubled in less than 13 months.

The shares surged by more than 1pc to $325.33 in extended trading after the numbers came out. That is up from $142 in January 2019 after Apple warned that consumers were not buying as many new iPhones as they once were, especially in China, the company’s biggest market outside the US and Europe.

‘The coronavirus situation is emerging – we’re still gathering lots of data points and monitoring it very closely’
^{– TIM COOK}

China is also where Apple makes most of its iPhones and several other products. If the shares move similarly in today’s (29 January) regular trading session, they will mark a new all-time high for the stock and further cement Apple’s position as the most valuable company in the US, with a market value of $1.4trn.

Coronavirus concern

The deadly virus outbreak in China, which has curtailed travel and threatens the world economy, now looms as a potential concern for Apple. But investors, for now, are focusing on what now looks like an even more prosperous road ahead for a company that turned a $55bn profit in its past fiscal year.

In a conference call, chief executive Tim Cook said the coronavirus outbreak has already caused some of Apple’s suppliers in China to delay reopening their factories after the Lunar New Year holiday from the end of this month until 10 February.

And some stores in China selling Apple products already have temporarily closed or reduced their operating hours because fewer customers are shopping as virus worries escalate.

“The situation is emerging and we’re still gathering lots of data points and monitoring it very closely,” Cook said.

Boost from iPhone 11

Apple got off to a fast start for fiscal 2020, with a first-quarter profit of $22.2bn, or $4.99 per share, on revenue of $91.8bn. Analysts polled by FactSet had predicted earnings of $4.54 per share on revenue of $88.5bn. As usual, the iPhone remained Apple’s main attraction.

Boosted by the release of the iPhone 11 heading into the Christmas season, the product generated sales of $56bn, an 8pc increase from the previous year’s disappointing showing.

Apple’s division that includes its app store, product warranties, music streaming and a new Netflix-like video service delivered revenue of $12.7bn, up 17pc from the previous year. Apple is hoping its service division will produce revenue of at least $50bn this year, doubling its output in just four years.

The services division is feeding into all iPhones, iPads, Macs and other Apple products already being used, which the company said now totals 1.5bn devices, up by 100m from the previous year.

“We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers — and a great driver of our growth across the board,” Cook said in a statement.

Wearables core to Apple’ future

The Apple TV+ video streaming service that Apple launched amid great fanfare in October is supposed to help that cause, but it may not be a huge contributor this year.

Apple is giving away a free year of Apple TV+ to anyone who buys a new iPhone or several other devices, a promotion that means tens of millions of people are not paying anything for the service yet. Apple did not disclose how many subscribers the service had at the end of its first quarter in operation.

Meanwhile, the Apple Watch that the company began selling nearly five years ago continued to gain new converts and the latest version of its wireless earbuds, AirPods, emerged as a hot commodity during the Christmas period.

Apple introduced the AirPods after removing the headphone jack from the iPhone in 2016, but the product picked up more momentum in October with a next-generation set designed to fit better in people’s ears. That version, called AirPods Pro, proved so popular that Apple had trouble keeping it in stock.

All those factors helped Apple’s wearables, home and accessories category garner sales totalling $10bn in the past quarter, a 37pc increase from the previous year. That makes this category Apple’s fastest-growing division.