China in the midst of the COVID-19 epidemic. & nbsp; “data-reactid =” 16 “> Apple is considering a potentially unprecedented drop in iPhone sales in China amid the COVID-19 epidemic.
The company, which saw its stores in China closed and manufacturing partners slowed down their factories in the aftermath of the epidemic, shipped around 500,000 iPhones to China in February, Wedbush analyst Dan Ives said, citing figures. of the Chinese government. This is down from 1.27 million units in February 2019 – a massive drop that heralds serious short-term problems.
“These are apocalyptic-style iPhone units and overall smartphone sales which are not surprising given the critical lockdown that most of China saw during the month of February, with stores closed and the supply chain under massive pressure due to the coronavirus epidemic in the country, ”Ives wrote in a note on Monday.
The drop is not unexpected, however. On February 17, Apple sent a letter to shareholders saying it would miss its forecast for the second quarter, while choosing not to offer a new line for the quarter.
AAPL) In the immediate future, the company’s next iPhone, slated for launch in September, should be able to right the tech giant’s ship. “data-reactid =” 40 “> But despite the gloomy appearance of Apple (AAPL) in the immediate future, the company’s next iPhone, scheduled for launch in September, should be able to turn the giant’s ship around of technology.
Greater China is Apple’s third-largest revenue generator by region, behind Europe and the United States. In the first quarter of 2020, the company generated revenue of $ 13.6 billion. in China, while Europe and the United States raised $ 23.3 billion and $ 41.4 billion, respectively. But with the coronavirus that spins Apple’s manufacturing capabilities, these revenue numbers are not expected to hold steady, particularly in China.
Bloomberg reported last week. “data-reactid =” 43 “> Apple is already warning Apple Store employees that replacement parts and devices will be out of stock for several weeks, Bloomberg reported last week.
interview with Fox Business, CEO Tim Cook explained that Apple’s manufacturing partners in China are back online and striving to reach their full capacity. But we still don’t know when it will happen. “Data-reactid =” 44 “> In an interview with Fox Business on February 27, CEO Tim Cook explained that Apple’s manufacturing partners in China are back online and striving to reach their full capacity But we still don’t know when it will happen.
“As we discussed, calling Chinese iPhone units during this unprecedented coronavirus epidemic is an impossible task with our expectations that the units could be down well north of 50% year-on-year during the March quarter , given the massive disruptions in the supply chain and in particular demand in the region, ”wrote Ives in his note.
It’s not just iPhone sales that Apple has to manage. Everything from iPads to Macs will also be affected by the coronavirus epidemic. Even more troubling for the company is the success of the AirPods and Apple Watch. The AirPods Pros, in particular, have been hard to find since their launch in late 2019, and it’s unlikely to change anytime soon due to the virus.
Looking to the future
While Apple is sure to take a beating when it releases its second quarter results, the company, according to Ives, should be able to recover through its next product portfolio.
Specifically, a combination of millions of devices in the window of opportunity for upgrades, pent-up demand potential for the iPhone 11 caused by production stoppages, and the next iPhone 12, which is expected to be the first iPhone 5G from Apple could result in a super cycle of massive iPhone sales.
“While supply chain issues and changing demand in China are fundamental short-term headwinds, our main goal is that the first part of this massive upgrade opportunity on the horizon with 5G at the top should always be between 215 million and 220 million units. looking at FY21, ”wrote Ives.
It is even possible that Apple will move north of 231 million iPhones in fiscal 2021, which would be the company’s previous fiscal year sales record set in 2015.
A bright spot that Apple could point to in its second quarter results is its services division. While the company is already expecting lower device sales, services could see less of an impact, thanks to things like the iTunes Store, the App Store, Apple Music and Apple TV +.
AppleCare numbers may not be what they could, as a drop in the number of consumers buying hardware could affect sales of AppleCare plans, but the segment may offer the type of bright light that investors are looking for in what should be an otherwise grim profit statement.
The key for Apple, however, is to ensure that the impact of the coronavirus is limited to the first half of 2020 and that when the iPhone 12 is ready to launch, it will be able to meet demand.
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