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For Clues on How Apple’s Quarter Is Shaping Up, Keep an Eye on Its Suppliers

The next few weeks could bring revenue revisions and revealing bits of guidance and public commentary from Apple's key suppliers.
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Apple will deliver less revenue than expected this quarter -- but exactly how much less is anyone’s guess.

The ongoing coronavirus outbreak has impaired supply chains in and around Wuhan, China and while some factories have begun to resume operations, no one knows for certain when the virus will be fully contained and business will resume as normal. Apple undefined shares fell sharply on Tuesday morning following its March quarter revenue warning, but largely recovered those losses and closed at $323.62 on Wednesday.

Apple said that its first-quarter revenue will come in lower than the original range of $63 billion to $67 billion, and analysts followed up various updates and revisions to their forecasts. But for more hints on how Apple’s March quarter will shape up, investors can look to Apple's suppliers -- some of whom have their own quarterly reports coming up.

"Over the coming weeks, I expect to see more revenue revisions from these companies," said Romeo Alvarez, analyst at William O'Neil + Co.

Apple has more than 200 suppliers with varying levels of exposure to the tech giant's sprawling supply chain. Listening closely to their public disclosures could shed light on the manufacturing disruptions affecting Apple.

“The first company that we’re going to hear from is Universal Display,” Alvarez added, referring to a supplier of OLED components, which reports its latest results on Thursday, Feb. 20.

A key OLED supplier with operations near Wuhan, Universal Display Corporation’s  (OLED)  commentary and guidance could add more clarity to disruptions in the region. Other suppliers with high revenue exposure to Apple -- such as audio chipmaker Cirrus Logic, Inc.  (CRUS) -- could wind up issuing their own revenue revisions in the coming weeks, Alvarez added.

Apple itself won’t report its March quarter earnings until the end of April, although it hasn’t yet scheduled a specific date.

Shortly before Apple’s release, its major manufacturing partner, Hon Hai Precision Industry, Co., Ltd. (better known as Foxconn), will release its latest financial results on the Taiwan Stock Exchange. Foxconn is due to report its latest results at the end of March, and investors will hear more about disruptions to factories in the region.

Reuters reported last week that just 10% of Foxconn’s workers had returned to work as of Feb. 10, although the company disputed that reporting.

Earlier on Wednesday, Nikkei Asian Review reported that Apple’s suppliers are operating at 30% to 50% capacity on average, but are gradually ramping up production. Production of a forthcoming new, cheaper iPhone has been delayed by at least a couple of weeks, according to the paper.

Analysts anticipate that the Coronavirus outbreak could weaken Apple’s quarter both on the production and demand side.

“We note iPhone supply constraints appear more severe than previously thought, with key manufacturing partner Foxconn still running at extremely low utilization rates,” wrote CFRA Research’s Angelo Zino this week, noting that headwinds could persist into next quarter. “Not surprisingly, we expect China demand will also disappoint, as we now forecast AAPL to see revenue decline in the Mar-Q despite easy comparisons (down over 20% a year earlier).”

The coronavirus outbreak has killed more than 2000 people and sickened tens of thousands more, according to updated figures released by China's National Health Commission early Wednesday.