Microsoft Shares Tumble After Cautioning on Coronavirus Hit To PC and Windows Revenue

Microsoft joins Apple in warning that supply disruptions in China will hit current quarter sales forecast as workers and factories slowly return to full capacity in the wake of the coronavirus outbreak.
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Microsoft Corp.  (MSFT) - Get Report shares slumped lower Thursday after the tech giant cautioned investors that it would not meet revenue forecasts for its Window and PC division owing to supply-chain disruptions linked to the coronavirus.

Microsoft said its previous forecast for revenues of between $10.75 billion and $11.15 billion from the division, which it calls 'More Personal Computing', was wider than usual when it was issued on January 29, and is now unlikely to be met as production facilities in China slowly return to full capacity. Microsoft said it still sees intelligent cloud revenues -- where it remains locked in a battle with market leader Amazon Inc.  (AMZN) - Get Report -- in the region of $11.85 to $12.05 billion.

"Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our Q2 earnings call," the company said. "As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated. All other components of our Q3 guidance remain unchanged."

"As the conditions evolve, Microsoft will act to ensure the health and safety of our employees, customers, and partners during this difficult period," the statement added. "We will also continue to partner with local and global health authorities to provide additional assistance." 

Microsoft shares were marked 2.5% lower in early Thursday trading to change hands at $166.33 each, a move that would mark a 13% decline from the stock's all-time high recorded on February 11.

Last week, Apple  (AAPL) - Get Report scrapped its second-quarter revenue guidance Monday, citing the ongoing impact of the coronavirus outbreak in China, and noted that iPhone shortages would affect the tech giant's near-term sales.

Apple said manufacturing sites in China that had been closed by government officials following the coronavirus outbreak were coming back on line, but added the company was experiencing "a slower return to normal conditions than we had anticipated", a view echoed in Microsoft's Wednesday statement.  

Apple also said iPhone supplies will be temporarily constrained by the outbreak, and noted China demand would also be hit by the spread of the virus and the subsequent store and factory closures. 

"Our experience is that supply issues are, and should be, looked through by investors," said BMO Capital Markets analyst Keith Bachman, who made not changes to either his $200 price target or "outperform" rating for Microsoft stock. "Examples include the Thai floods and Japanese earthquake issues that disrupted the supply of (hard disk drives), and numerous Apple supply issues at time of product launches. "