By Chand Bellur
February 4, 2020 at 4:19 p.m. PDT
- Fears of a new coronavirus outbreak have shut down manufacturing facilities in China.
- Apple closed all 42 Apple Stores in China, in addition to shuttering corporate offices and other facilities.
- Apple manufacturing partner Foxconn has ceased all manufacturing through February 10, 2020.
Foxconn Ceases Production at Most Manufacturing Facilities
Modern corporations don’t do everything in-house. Vertical integration is sometimes beneficial, however, large, multinational corporations specializing in manufacturing can easily compete with in-house manufacturing. For these reasons, Apple outsources manufacturing to other companies, such as Foxconn.
The largest iPhone manufacturing facility, operated by Foxconn, is only 300 miles from Wuhan, ground zero for the coronavirus outbreak. This, and other Foxconn manufacturing facilities, will be closed through February 10, 2020. Additionally, many of the companies that supply components for the iPhone will also be closed. Without a doubt, coronavirus will affect Apple’s bottom line.
Apple Anticipated Coronavirus Impact in Q1 2020 Earnings Report
Apple’s recent quarterly earnings report took the coronavirus outbreak into account. The Cupertino company padded fiscal Q2 2020 estimated earnings with a $4 billion variance. This is a smart move, as this will enable Apple to meet expectations. Apple stock shouldn’t go down due to coronavirus, however, many analysts feel the stock is overvalued and due for a correction.
Analysts Predict 10% Decrease in iPhone Shipments Due to Coronavirus
Analysts often have wild speculations about Apple that prove false over time. Few have been able to provide a realistic price target on Apple stock. Similarly, any predictions on iPhone supply should be suspect.
A few of the most notable Apple watchers expect that coronavirus will shave off 10% of Apple’s iPhone shipments. This figure seems rather high, and may be inflated to garner more page views.
Apple’s partners have factories all over the world, and while the one near Wuhan is the biggest, it’s not the only one. Foxconn has set up operations in Vietnam, and Apple manufactures AirPods in this Southeast Asian nation. Apple also manufactures iPhones in India.
It’s entirely possible that Apple has shifted manufacturing priorities to favor profitable and popular iPhone 11 models. In fact, Tim Cook went so far as to say this is their plan:
“…we’re obviously working on mitigation plans to make up any expected production loss…”
Given Cook’s statement, it’s possible that claims of a 10% iPhone production shortfall are clickbait. The Foxconn factory won’t even be shut down for 10% of a year. Obviously, Apple and Foxconn can shift priorities and increase production bandwidth to compensate for the shortfall.
There will likely be some kink in iPhone 11 supply. A ten percent decrease in supply is a bit dramatic and unlikely. It’s far more likely that Apple will wow investors with another stellar quarterly report.