China's Academy of Information and Communications Technology, a government agency, reported that widespread travel restrictions and quarantines through the Lunar New Year cut mobile phone sales by more than half in February. Shipments of Apple phones fell to 494,000 last month, down from 1.27 million in the year-ago quarter.
Shares of Apple were down nearly 6% on Monday amid a broader market sell-off triggered by a plunge in oil prices and ongoing coronavirus fears.
The drop in iPhone sales is worse than some analysts had predicted, and point to a steep demand plunge in China in addition to supply-chain disruptions faced by Apple and other firms that manufacture goods near Wuhan, where the coronavirus outbreak originated.
"These are doomsday type of iPhone units and overall smartphone sales which are not surprising given the essential lockdown that most of China saw during the month of February," wrote Wedbush analyst Dan Ives in a note on Monday.
Apple CEO Tim Cook told Fox Business Network late last month that China was "getting the coronavirus under control," and that Apple's production was ramping back up, but couldn't give assurance that the damage to Apple would be contained to the March quarter. Apple pulled its revenue guidance for the quarter in February, but did not issue a specific downward revision due to the evolving nature of the coronavirus threat.
Ives added that the steep drop in Chinese iPhone sales in the March quarter is tantamount to a "shock event," and that demand will likely normalize in the second half of 2020.
Nonetheless, the Apple sales numbers paint a picture of a dramatic drop in consumer demand in China in the midst of the outbreak.
Other U.S. firms with a significant consumer presence in China, such as Starbucks (SBUX) - Get Report and Disney (DIS) - Get Report, have warned of a plunge in first quarter revenue owing to the spread of coronavirus.
In late February, Goldman Sachs forecast that fallout from the coronavirus outbreak could yield zero earnings growth for the S&P 500 in 2020. The forecast reflects a "severe decline in Chinese economic activity in 1Q, lower end-demand for U.S. exporters, disruption to the supply chain for many U.S. firms, a slowdown in U.S. economic activity, and elevated business uncertainty,” according to Goldman Sachs analyst David Kostin.
The Dow Jones closed more than 2000 points lower on Monday, equivalent to a roughly 8% drop, in one of the worst trading days since the 2008 financial crisis.
Apple, Starbucks and Disney are all components in the Action Alerts Plus portfolio. Join Jim Cramer's special Action Alerts PLUS members-only call Thursday to prepare your investment strategy during the economic fallout from the coronavirus and as oil prices fall amid a price war.