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China’s COVID chaos is showing up in corporate earnings

Fortune 2/3/2023 Nicholas Gordon
Chinese shoppers gather around an iPhone stand in China. © VCG—VCG via Getty Images Chinese shoppers gather around an iPhone stand in China.

Any company doing business in China has had a rough quarter.

Throughout September and November, Chinese authorities imposed strict lockdowns and other COVID control measures in a futile effort to suppress outbreaks across the country. 

Then, in December, Chinese authorities rapidly rolled back lockdowns and other social distancing measures. Those policy changes were then followed by a record-breaking COVID outbreak as the disease ran rampant through Chinese cities, with some officials estimating daily case counts in the tens of millions.

Now, the economic damage of that COVID chaos is coming through in earnings reports, whether due to disrupted production from locked-down factories, or lowered sales as consumers stayed home to recover or protect themselves. Yet companies are hopeful that China's reopening means the worst is over for their revenues.

China’s COVID outbreak may be receding, though health officials are still waiting to see whether cases may surge again following the Lunar New Year holiday. The Chinese Centers for Disease Control and Prevention said on Wednesday that the number of severe COVID cases among hospitalized patients is down 89% from its peak in early January.

Official Chinese data put the total COVID death toll at just over 84,000, but that is likely to be an undercount. A model from U.K.-based research firm Airfinity estimates the total COVID death toll since Dec. 1 at 1.19 million.


On Thursday, Apple reported its first decline in quarterly revenue since 2019. The U.S.-based tech giant reported quarterly revenue of $117.2 billion for the most recent quarter, a year-on-year decline of 5%. 

On an earnings call, Apple CEO Tim Cook blamed COVID for its slumping sales, which came in below analyst expectations. Cook said “COVID-19-related challenges” disrupted the supply of the iPhone 14 Pro and iPhone 14 Pro Max through most of December, leading to extended ship times. 

Last November, Foxconn, a major Apple supplier, imposed mobility controls in its iPhone factory in Zhengzhou to suppress a budding outbreak. The factory’s workers, who could number as high as 300,000, were barred from leaving the site and eating in common areas. Many workers fled back to their hometowns, while those who remained were frustrated by COVID measures and feared getting infected. At the time, Apple warned that factory disruptions could affect holiday shipments of the latest iPhone models. 

Today, Apple thinks these disruptions are over. “Production is now back where we want it to be,” Cook said on Thursday.

The company also said that Beijing’s COVID controls hurt sales in China, one of the company's most important consumer markets. Yet the company is optimistic that demand will recover due to the country's reopening. Cook told analysts that Apple stores reported an increase in traffic in early December, after China lifted its COVID controls. “That followed through to demand as well,” Cook told analysts.

Apple shares are down 3.7% in after-market trading. 


Starbucks reported $8.7 billion in quarterly revenue on Thursday, a record for the coffee company and an 8% year-on-year increase. But the company’s results were dragged down by crashing demand in China, Starbucks’ second-largest market.

The coffee company reported a 5% increase in global store sales overall. But sales in China fell by 29% as consumers stayed home. The decline was even more steep in December—the start of China’s record COVID surge—with sales falling by 42% compared to December 2021. 

China’s decline was so large that it offset strong growth elsewhere in the world. On the company's earnings call, Starbucks CEO Howard Schultz noted that the company saw strong sales growth in all of its international market “except for China,” and that the company would have reported double-digit growth in international sales if China were excluded.  

Yet the coffee company also believes the worst is behind it. The country’s reopening “positions the country to resume pre-COVID levels of consumer, social and economic growth,” said Schultz. “Huge consumer demand in China is waiting to be unleashed,” he said.

Starbucks shares are down 1.8% in after-market trading.

Estée Lauder

The Estée Lauder Companies reported $4.62 billion in sales for the most recent quarter, a year-on-year decline of 17%. The company blamed both COVID lockdowns and surging cases in China for dragging down its retail sales, particularly in the Chinese tourism hotspot of Hainan.

The company said these COVID disruptions “led to prolonged store closures” and “caused the tightening of inventory by certain retailers who had previously placed orders in anticipation of the return of travel that was since delayed.” 

Yet the cosmetics company is hopeful that the return of Chinese travelers will support the company’s recovery. “Where there is obviously high traffic, our brands respond enormously,” Fabrizio Freda, the company’s CEO, said on the company's earnings call

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