Apple’s Outlook Cut Due to Coronavirus Outbreak Renews Questions of Over-Reliance on China

Apple’s reliance on China is once again in the spotlight, this time because of the Wuhan coronavirus — an outbreak that has temporarily frozen the company’s retail operations in the country and rattled its supply chain in a matter of days.

A new Bloomberg report explains that Apple is going to miss its revenue targets for the current financial quarter, and the company says the coronavirus outbreak is to blame for expected iPhone supply shortages.

In a statement posted yesterday, Apple warned that it wouldn’t “meet the revenue guidance we provided for the March quarter.” A few weeks ago when announcing its holiday sales, Apple told Wall Street analysts that revenue for the quarter ending this March would range between $63 billion USD and $67 billion. Had Apple been able to pull that off, that would have been growth of 9 percent to 16 percent over the year-ago quarter.

The virus, and the uncertainty about how it may affect Apple’s supply chain, have reiterated the Cupertino company’s reliance on China. It also comes just after the tech giant dodged 15% tariffs on Chinese imports that would have impacted the iPhone and other important products.

“I’m going to be really surprised if Apple doesn’t end up reporting reduced sales and production,” said Frank Gillett, vice president and principal analyst at market research firm Forrester. “The supply chain of these high value consumer electronics products is so tight and efficient that disruptions are felt quickly, and there’s limited ability to catch up once you get in the hole.”

There may also be less purely economic reasons for sticking with China. Apple and its contract manufacturers, led by Foxconn, are collectively China’s largest private employer, providing work for millions of people. A reduced Apple presence could have significant implications for the local job market and rub Beijing the wrong way at a time Chinese officials see a slowing economy as a significant risk to stability.

Apple has reportedly been investigating the prospect of shifting some of its iPhone production out of China. Recent reports suggest that the tech giant had asked its suppliers to look into moving 15 percent to 30 percent of their production capacity from China to Southeast Asia. But doing so would be a significant challenge for Apple given its size and scale.