Although the full impact of the corona virus outbreak in China remains to be seen, the economic impact is already being felt by some of & # 39; the world's largest companies. This is especially the case for companies with large markets or major suppliers in the Asian superpower.
iPhone maker Apple (NASDAQ 🙂 has both. And yesterday, the share of the smartphone and computer manufacturer fell by more than 2% after Apple announced on Monday that it does not expect to meet sales expectations for the March quarter. The reason: work delays and lower demand for smartphones in China, the Cupertino, one of the largest markets of the CA company, which raised nearly $ 52 billion in the most recent sales.
Limited production, reduced demand
Apple said that production of the iPhone – which generates most of the company's revenue – is temporarily limited due to virus-related problems. "Work is starting to resume across the country, but we are experiencing a slower return to normal conditions than we expected," the company said in a statement. Moreover, the demand for iPhones has decreased because stores in China are closed or work with fewer hours and few customers, the company said
.
Apple planned to start producing a new, cheap iPhone in February and make it available for sale in March, Bloomberg News reported. It is unclear how the corona virus affected those plans.
In January, prior to the virus spread, the company said it expects net sales of $ 63- $ 67 billion in the fiscal second quarter. It did not deliver an updated range on Monday.
AAPL Weekly
The current weakness in Apple shares comes after a very powerful rally in the last 12 months that has added more than $ 725 billion to the company's market capitalization, bringing it to around $ 1.38 trillion. The stock closed Monday at $ 318.25, 3% lower than its record high of $ 327.85. Shares have risen 8% this year and 86% in the last 12 months.
Until now, investors are convinced that the effects of the outbreak will be short-lived, especially if the underlying strength of the US economy remains intact and central banks in both the US and China are ready to step in to economy. That was the primary catalyst that pushed the record to a record on Friday, the 12th time for the year.
Weakness, a buying opportunity?
For some, the spread of the deadly virus could be the next & # 39; black swan & # 39; event that could end the 11-year-old bull-run in US stock markets. As of today, more than 75,000 coronavirus cases have been confirmed, including at least 2,000 deaths, mostly in China.
Credit Suisse said in a note yesterday that the coronavirus "impact more likely requires disruption / disruption than outright destruction." The company estimates that any weakness will be remedied in the second half of 2020.
That said, it will be almost impossible for some large companies to get out of this global emergency unharmed. But that weakness in the short term can also offer a starting point if you are sitting on the sidelines waiting for the right opportunity.
Apple shares continue to offer one of the best long-term technical opportunities, given the company's strong business model. One of the most important factors that makes Apple a strong, long-term stock is the rapidly evolving ecosystem of products and services, giving the company ever deeper market penetration.
Apple's service unit, including growth companies such as the App Store, Apple Pay and Apple Music, continues to grow and contributes more to the company's overall revenue each year.
Add to this optimism: signs that Apple & # 39; s iPhone activities remain robust and are likely to get an extra boost when the company releases its 5G models, which are currently expected in September 2020. This development offers consumers a much faster connection speed and helps iPhone shipments grow for the first time in two years.
With prospects for iPhone sales expansion looking strong after the implementation of 5G technology, the rapidly increasing revenue from Apple & # 39; s AirPods, smartwatches and services such as streaming music subscriptions and mobile payments also strengthen the belief that the company manages to reduce its dependence on the more cyclical hardware company and is on its way to becoming a service company.
Indeed, the growth in his services department last year helped Apple compensate for the 14% drop in its iPhone activities. For this year, revenue from services is expected to rise to $ 54 billion, accounting for one-fifth of total revenue, an increase of 18% at the end of 2019.
Bottom Line
The economic disruption caused by the corona virus makes Apple one of the most exposed megacaps currently doing business in Asia. But in our opinion, a long-term weakness is a possibility to buy, especially when the pressure from the company to expand the sale of services is bearing fruit, even as the growth of iPhones is reviving.
This powerful combination should help deter a large sale in its inventory. But if that happens, it's only short-lived.