Apple's 2021 Earnings Might Be at Risk, Too, if Coronavirus Woes Persist

If supply and demand disruptions continue through the summer, Apple investors could see earnings impacts into fiscal 2021.
Author:
Updated:
Original:

Apple investors could be feeling the effects of the coronavirus outbreak into its next fiscal year. 

Widespread quarantines and travel restrictions in China have drained demand for iPhones in the March quarter, and while the damage to Apple's China sales may be mostly contained to that time period, the impacts will extend into subsequent quarters according to analysts. Apple  (AAPL) - Get Report shares were up 4.20% to $277.35 on Tuesday amid another turbulent trading day following Monday's market selloff. 

According to Wedbush analyst Dan Ives, the precise impact to Apple's overall fiscal 2020 earnings are "still up in the air" as the COVID-19 virus continues to spread worldwide. But the piece of encouraging news for investors is that manufacturing in China appears to be steadily returning to normal -- and if that's indeed the case, Apple's latest phones, including a 5G version for the first time, will stay on track for their typical fall release schedule. 

"As long as the supply chain is on a normalized trajectory by late April, then the 5G phones should be able to launch in the fall," he said. "If it pushes past early May, then it starts to get dicey."

Apple had been originally rumored to be launching a new lower-cost iPhone this month, but any such plans would have necessarily been scrapped and pushed out by at least a couple of months, Ives added. 

As for iPhone sales, recent data points to a decline of more than 50% in China in February. China's Academy of Information and Communications Technology, a government agency, reported on Monday that shipments of Apple phones in China plunged to 494,000 last month, down from 1.27 million in the year-ago quarter. China sales represent roughly 15% to 20% of Apple's overall revenue in a typical quarter. 

A Feb. 25 report by Needham estimated that, as a result of China weakness, Apple's revenue will drop by 13% in the March quarter and 7% in the June quarter compared to its original estimates. It also lowered profit estimates for fiscal 2020 to $13.45 per share from $14.30. 

That revised estimate assumed that normal supply and demand will resume by June 1. But that assumption "may prove too optimistic," according to Needham analyst Laura Martin. 

Apple's fiscal year ends on Sept. 30, and if supply and demand disturbances persist past June, fiscal 2021 may take a hit as well, Martin wrote. And investors should be paying very close attention. 

"The longer COVID-19 disruptions continue past June 1, the greater the threat to AAPL's Sept new product launches (including its 5G phone) and Christmas selling season revenue, which represented about 32% of annual revs in each of the past 3 years."  

Apple is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.