The deadly coronavirus outbreak in Wuhan, China may have ripple effects for Apple.
As of Tuesday, Chinese authorities are undertaking drastic measures to contain the virus, which has infected thousands and killed more than 100 people. Those measures include a quarantine on Wuhan and travel restrictions in the surrounding area, potentially disrupting Apple’s manufacturing base in the region. Shares of Apple (AAPL) – Get Report were rising 2.38% to $316.32 on Tuesday.
According to a report from Nikkei Asian Review, Apple’s suppliers have warned that the outbreak could complicate Apple’s iPhone production, including production of a planned lower-cost iPhone due to be revealed this year. Apple had asked suppliers to produce 80 million iPhones total in the first half of this year — 65 million iPhone 11 models and 15 million of the forthcoming budget model — but suppliers including Foxconn have expressed concern that the virus could interfere the rapid pace of manufacturing, the report said.
Apple’s main manufacturing bases are located in Zhengzhou and near Shanghai, both of which are several hundred miles away from the center of the outbreak — but critical supply chain issues such as staffing and movement of raw materials around the region may be vulnerable to disruption.
“Supply chain disruption is a worry if employees across Foxconn and other component manufacturing hubs in China are restricted along with transportation issues which could limit or slow down supply,” Wedbush analyst Dan Ives told TheStreet. “Right now it’s contained, however if the China outbreak becomes more spread it could negatively impact the supply chain which would be a major investor worry.”
Apple reports its December quarter earnings after the close today, and CEO Tim Cook is expected to comment on the coronavirus outbreak on its shareholder call. Investors will also be closely watching Apple’s China results in general in light of a developing U.S.-China trade deal and last year’s relative weakness in the market.
“I’m certain that Apple’s supply chain will be impacted,” added Patrick Moorhead, president at Moor Insights & Strategy. “The only question is how big that impact be and how long it will be for. Entire cities are being sequestered and citizens are unable to even work in the heaviest hit cities.”
News of possible disruption to Apple’s iPhone production also highlights its reliance on China as a manufacturing base, another area of close scrutiny amid tariff threats by the Trump administration throughout 2019.
Apple is reportedly endeavoring to shift some of its production to India and Southeast Asia, but doing so will be a lengthy and complicated process. Wedbush’s Ives estimated last year that it would take Apple at least two to three years to move 15% of its iPhone production to other countries, such as India and Vietnam.
The iPhone giant is expected to report earnings of $4.54 per share on revenue of $88.41 billion for the fourth quarter.