Is the latest Apple share price tumble a sign of things to come?

What do investment experts think of Apple’s most recent – and slightly underwhelming – Q2 investor update?

US market analysts say that Apple Inc's share price drop on Tuesday 18 February – largely caused by lowered revenue estimates as a result of the coronavirus crisis – is something to worry about at least in the short-term, with long-term effects unlikely.

The iPhone maker’s share price sunk as much as 3.2% on Tuesday, a day after it posted a less-than-ideal Q2 FY2020 financial update for investors.

Apple’s latest Q2 update: ‘we do not expect to meet revenue guidance’

On Monday 17 February, the technology giant issued the following quarterly guidance:

‘Our quarterly guidance issued on January 28, 2020 reflected the best information available at the time as well as our best estimates about the pace of return to work following the end of the extended Chinese New Year holiday on February 10.

Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated.

As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.’

Lower iPhone supply; China demand affected

The note elaborated that that the two factors for this lowered forecast are firstly because the global iPhone supply will be temporarily constrained, and because demand for Apple’s products within China has been affected.

Apple said that while its iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than had been anticipated, with the health and well-being of every assembly line employee now a top priority.

This means iPhone production has slowed down, and supply shortages will inevitably temporarily affect revenues worldwide.

Additionally, all of Apple’s China stores (and many of its partner stores) have been closed. Partner stores that are open have been operating at reduced hours and with very low customer traffic.

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Analysts’ take on the coronavirus: ‘transitory impact’

Despite this mostly negative update, most US investment analysts and brokers remain optimistic about the company’s long-term financial health and investor prospectus.

While they acknowledge that Apple’s revenue for the quarter ending March 2020 will undoubtedly be impacted – with China accounting for nearly 17% of its total revenue in 2019 – they are also adamant that Covid-19’s impact on sales revenues is merely ‘transitory’.

Barclays senior equity research analyst Tim Long wrote in a note that ‘this is likely to be viewed as a transitory event’, although it ‘highlights an inherent risk with Apple being too exposed to the supply chain in China’. He gave the stock an ‘equal-weight’ rating, and lowered his share price target slightly to US$297 from US$304.

Cascend Securities’ Eric Ross said the new guidance ‘shouldn’t be a surprise’ and is in fact ‘more positive than we had expected’. He added that the production disruptions are ‘likely to be temporary’, while affirming that there is ‘definitely less economic activity in China because of the virus’. He has reiterated a ‘buy’ rating and a US$375 per share price target on the basis of the Apple ecosystem’s unwavering ‘tremendous value’.

Baird analyst William V. Power posits that the ‘broader story remains very much intact,’ assuming the Coronavirus impact does not run longer.

Analysts from Bernstein and Erste Group Bank, on the other hand, said it is ‘hard to say’ whether the revenue impact will be limited only to Q2 or if it will be extended to future quarters.

Global long-term outlook ‘still in line with expectations’

JPMorgan analyst and keen Apple observer Samik Chatterjee is the most positive of them all. He said that the long-term outlook for the company ‘remains unchanged’, even with the virus situation still hanging over the company. That’s because 5G-enabled iPhones are still expected to launch later this year, he said. Furthermore, Apple has also become less reliant on selling iPhones in China than a year ago.

Chatterjee might be on to something. Apple did also put in this little disclaimer at the end of its latest guidance: ‘Outside of China, customer demand across various product and service categories has been strong to-date and still in line with expectations’. This indicates that global sales are still healthy.

As Keybanc Capital Markets’ John Vinh noted, demand for Apple products in North America ‘remained robust’ in January 2020, despite the supply and demand uncertainty created by the coronavirus crisis in Asia.

For now, it does seem like the impact is mostly short-term. Since the share price plunge on Tuesday, Apple shares have recovered roughly 1.3% and are now trading flat at US$319 per share.

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