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Apple warns that coronavirus will hurt revenue

The Boston Globe logo The Boston Globe 2/18/2020 Daisuke Wakabayashi
a group of people standing around a table: Employees wore face masks as they stood in a reopened Apple Store in Beijing. Apple Inc. is warning investors that it won't meet its second-quarter financial guidance because the viral outbreak in China has cut production of iPhones. © Provided by The Boston Globe Employees wore face masks as they stood in a reopened Apple Store in Beijing. Apple Inc. is warning investors that it won't meet its second-quarter financial guidance because the viral outbreak in China has cut production of iPhones.

SAN FRANCISCO — Apple said Monday it was cutting its quarterly sales expectations because of the coronavirus in China, an announcement that underscored the far-reaching effects of the public health crisis on the global economy.

The announcement came as health officials disclosed that 14 Americans had tested positive for the virus after hundreds of US citizens were evacuated from a cruise ship off Japan to US facilities over the holiday weekend. That chaotic chain of events put virus-stricken passengers on flights with other evacuees.

Their return almost doubles the number of confirmed cases of the coronavirus in the United States to 29. The number of confirmed infections in China now exceeds 72,000, with the death toll rising to 1,868, the majority of both in Hubei province, where the virus emerged in December.

The afflicted US passengers had left the Diamond Princess, a cruise ship carrying 2,666 passengers and 1,045 crew members that had been quarantined for two weeks off the Japanese port of Yokohama. It was unclear whether the other passengers on the planes to Travis Air Force Base in Fairfield, Calif., and Lackland Air Force Base in San Antonio were informed, according to a senior US official who spoke to The Washington Post on the condition of anonymity to speak freely about the incident. The State Department did not respond immediately to a request for comment.

Another 44 Americans from the ship tested positive for the virus Sunday and had been taken to hospitals in Japan.

As the health impact of the virus spread, so did the financial impact. Apple’s action Monday “is the first of many we’re going to see around the coronavirus impact,” said Daniel Ives, managing director of equity research at Wedbush Securities. “Apple is heavily exposed. It confirms the worst fears that the iPhone impact was going to be more dramatic than expected.”

The iPhone maker, which is highly dependent on Chinese factories and Chinese consumers, said in a statement that its supply of smartphones would be hampered because production was ramping up more slowly than expected as China reopened its factories. Apple also said that demand for its devices in China had been hurt by the outbreak; it closed all 42 of its stores in the country last month and most have yet to reopen.

“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” said Apple, one of the world’s most valuable public companies.

Apple, which is widely regarded as a bellwether of global supply and demand for goods, has bet big on China in recent years. The country is now the company’s second-largest market after the United States. Apple also assembles most of its products in China. None of the factories that make iPhones, however, are in Hubei province, the center of the outbreak.

Many global firms rely on factories in China to manufacture goods as varied as socks and laptop computers. And Chinese consumers, who had ridden a wave of rising wealth, had been avid buyers of luxury goods, iPhones, and many other items.

About three-quarters of a billion people in China are under some kind of lockdown orders, according to a New York Times analysis.

Several large companies have indicated that their production may be hurt. China’s giant network of factories, which accounts for a quarter of the world’s manufacturing output, was sluggish after the extended Lunar New Year holiday that authorities imposed because of the outbreak.

Fiat Chrysler Automobiles recently temporarily shut a factory in Serbia because of shortages of Chinese parts. European aerospace giant Airbus has indicated it is only slowly restarting its assembly line, and automakers including General Motors and Toyota have begun only limited production in recent days.

Starbucks and Ikea have also closed their stores in China and many shopping malls in the country have been deserted. International airlines, including American, Delta, United, Lufthansa and British Airways, have canceled flights to China.

An economic slowdown for China this year could clip global economic growth by 0.2 percent to an annual rate of 2.3 percent, according to one forecast from Oxford Economics. That would be the slowest pace since the global financial crisis late last decade.

The next signal of the virus’ impact is expected to come Tuesday, when Walmart is scheduled to report quarterly results.

For Apple to warn that it will miss sales expectations is highly unusual. The last time it cut its sales forecast was in January 2019 — the first time in 16 years it reduced its revenue guidance — because of poor iPhone sales in China.

Last month, Apple forecast that its sales would rise 9 percent to 15 percent in the current quarter. Asian stocks fell overnight.

Meanwhile, former passengers of the Diamond Princess, the cruise ship that had been quarantined for off the Japanese port of Yokohama, arrived in the United States.

One flight unloaded bleary-eyed passengers at Travis Air Force Base late Sunday night, and the other in Lackland Air Force Base early Monday.

All are due to go into quarantine for 14 days. Ten passengers who tested positive were moved to a hospital in Omaha upon arrival, where they are being quarantined, retested, and monitored in rooms with separate filtration systems at the University of Nebraska Medical Center. Four others with the virus are in a hospital outside Travis Air Force Base and will be moved to Omaha this week, an official said.

Japan’s Health Ministry on Monday reported 99 new cases of coronavirus among the passengers and crew of the Diamond Princess, increasing the total number of infections from the ship to 454, including the Americans.

Meanwhile, government officials in Malaysia, Cambodia, and the United States were scrambling on Monday to track down passengers from another cruise ship — the Westerdam, owned by Holland America Line — who may have been exposed to coronavirus.

Hundreds of passengers have flown home, mostly through Thailand or Malaysia, after the ship docked in the Cambodian port of Sihanoukville and authorities there deemed it coronavirus-free.

But an 83-year-old American woman tested positive for the virus after she disembarked from the ship and took a charter flight to Kuala Lumpur, the capital of Malaysia, along with 145 other passengers. They had all passed health checks by Cambodian authorities and were cleared to leave the ship and travel onward.

The new cases come amid a continuing scramble to contain the virus in China.

In Beijing, China’s ruling Communist Party signaled that it would almost certainly postpone the annual meeting of its legislature, the National People’s Congress.

Material from the Washington Post and Bloomberg News was used in this report.

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