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Apple and Microsoft Revise Revenue Forecasts: What is the Impact of Coronavirus Outbreak on Businesses and the Global Economy?

Professor of Financial Economics and Part-time Value Investor, Transfin.
Feb 27, 2020 12:07 PM 3 min read

In the past week, the impact of coronavirus outbreak on business and economy has become better known. Apple warned of iPhone shortages, Microsoft revised its growth forecasts, analysts slashed growth forecasts for China and the world, and the IMF urged for global cooperation to contain the spread of the virus.


Strike One

Last week, Apple said its prior financial forecast, provided during its January earnings cycle, is no longer valid. The company cited impacts from the coronavirus outbreak in China, which has shut down large swathes of the country and reverberated throughout the global economy.


The Cupertino-based firm cited two key reasons for this change in guidance: First, that “worldwide iPhone supply will be temporarily constrained”. Second, that “demand for our products within China has been” impacted by the Coronavirus.


Apple’s susceptibility to China’s problems is unsurprising. Foxconn, the world’s largest iPhone manufacturer, is based out of China. The Middle Kingdom is also one of the largest markets for Apple products.


Apple and Microsoft Revise Revenue Forecasts: What is the Impact of Coronavirus Outbreak on Businesses and the Global Economy?


Strike Two

Now, Microsoft has also said that it no longer expects the revenue guidance it issued last month to be met.


The tech giant had announced third quarter revenue estimates of $10.75bn to $11.15bn on January 29th. Those numbers are no longer accurate because Windows and Surface laptops are "more negatively impacted than previously anticipated," the company said.


While demand for Windows has been strong, supply chains have been disrupted since Chinese manufacturers closed their factories for longer than expected following the Lunar New Year holiday as the country fights to stem the outbreak. While some factories have reopened, it will take some time for normalcy to resume.


"All other components of our Q3 guidance remain unchanged," the company said. "As the conditions evolve, Microsoft will act to ensure the health and safety of our employees, customers, and partners during this difficult period."


All Hands on Deck

The coronavirus epidemic – which could become a pandemic – originated in China and has spread to 29 other countries and regions and has affected more than 76,000 people (as of February 20th). To contain it, the Chinese government launched the most extensive quarantine in history, putting entire cities in lockdown. This has affected the movement of hundreds of millions of people and left Chinese factories short of labour and parts, disrupting just-in-time supply chains and triggering sales warnings across technology, automotive, consumer goods, pharmaceutical and other industries.


Chinese GDP growth itself may slow by 0.5 percentage points this year, dragging down global growth by at least 0.1 percentage point. This will in turn create a ripple effect hurting economies dependant on China – and this includes advanced countries like Australia and developing ones like many in Asia and Africa.


It remains unclear for how long the impact of coronavirus outbreak will affect business and the world economy. But to contain it, an internationally coordinated response is necessary. As the head of the International Monetary Fund, Kristalina Georgieva, recently said, “Global cooperation is essential to the containment of the Covid-19 and its economic impact, particularly if the outbreak turns out to be more persistent and widespread.”


How well do you know the top news of the last week? Have a go at our TheWeekThatWas Quiz and test your wits.