The coronavirus outbreak in China is affecting Apple in more ways than just slowing down its supply chain; it’s also significantly cutting back on demand for Apple’s products in what is essentially Apple’s second-largest market.
Apple conceded this point in a note to investors last week, since many of its own retail stores and those of its resellers have been closed because due to the epidemic, however we’re only now getting an idea of how much of an impact it’s actually having, with a new UBS analyst report suggesting that iPhone sales have dropped by almost a third and it’s only going to get worse.
According to Bloomberg, an analysis of government data earlier this week revealed that iPhone demand fell by 28 percent in January alone, as compared with December’s sales, and since the outbreak only began toward the end of the month, the outlook for February is even more dim.
February numbers are likely to be far worse due to both supply and demand issues related to the virus outbreak.UBS analyst Timothy Arcuri
Since pulling its revenue forecast last week, Apple also hasn’t yet provided any revised numbers, likely due to the situation still being extremely fluid, however how fast Apple is able to recover will be dependent on what the demand is for the iPhone once things get back to normal, but as UBS Analyst Timothy Arcuri notes, that’s “very hard to predict” with any accuracy.
Apple has 42 retail stores in mainland China, all of which were shut down completely at the height of the outbreak. The company has been reopening them slowly and cautiously since February 10, and according to a separate report from Bloomberg, has now reopened 29 of them, as of yesterday. However, most of these locations have not returned to a full schedule, with some being open for fewer than eight hours each day, although Apple’s store directory pages suggest that operating hours could return to normal by the end of this week. Apple hasn’t shared when the other stores will be reopening.
It seems likely, however, that Apple’s recovery on the demand side in China will be fairly quick, since it’s unlikely the coronavirus has affected the long-term demand for the iPhone. In other words, just because people can’t buy new iPhones right now due to store closures and travel restrictions, doesn’t mean they don’t still want a new iPhone.
That said, Apple is still going to need to be able to actually produce enough iPhones to meet the level of demand, and production in China has also been hit quite hard, with Apple’s major supply partners not only having been shut down for over a week, but also ramping back up more slowly than originally expected, with only a fraction of employees reporting in for work at many of the plants due to travel restrictions.
Of course, the coronavirus situation isn’t just impacting Apple; sales in China are down across the board, and Apple already seems to be weathering the storm better than the overall market, which has seen smartphone shipments drop 37 percent form the same time last year, while iPhone sales have actually climbed 5 percent over the January 2019 numbers, likely due to the easing of tensions from the U.S.-China trade war.