Apple might see some effect from coronavirus in China, Cook states

Not even Apple is unsusceptible to the coronavirus sweeping the world, with providers and shops affected by the fatal illness. CEO Tim Cook recently stated the business has providers in China’s Wuhan area, where the coronavirus initially emerged. The iPhone maker has alternative sources for those parts, he stated, and it’s “working on mitigation plans to make up any expected production loss.” 

What’s less clear is how the coronavirus will affect providers in other parts of China, Cook stated. The Chinese federal government extended the New Year vacation break from completion of January to Feb. 10, which will postpone the start-up of Apple provider factories, Cook stated. 

Even if providers do return to deal with Monday, the 2 week stop of operations might imply hold-ups for some gadgets. Up to 45 million sets of AirPods might be captured in limbo while produces wait on parts required to put together the cordless earbuds, according to a report Thursday from Nikkei Asian Review.

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Apple made the move to temporarily shutter all of its stores in mainland China and close its corporate offices and contact centers in China through Feb. 9. 

“The situation is emerging, and we’re still gathering lots of data points and monitoring it very closely,” Cook said during a call with analysts after the company reported record earnings on Jan. 28.

Apple factored the possible supplier and retail traffic impact into its revenue guidance for the March quarter, which — at $63 billion to $67 billion — is a bigger range than it normally provides. Even with the possible impact, Apple’s projection is higher than the $62.45 billion expected by analysts. 

The virus’ spread

The virus was first detected in the Chinese city of Wuhan late last year. It has claimed more than 560 lives and infected over 28,000 Chinese citizens with a pneumonia-like illness. The virus, known as 2019-nCoV, was reported to the World Health Organization on Dec. 31 and has been under investigation since. Chinese scientists have linked the disease to a family of viruses known as coronaviruses, which include the deadly SARS and Middle East respiratory syndrome. 

The virus since has spread to Europe, Australia, the US and other countries. A special WHO committee declared a public health emergency of international concern on Jan. 30, citing “the potential for the virus to spread to countries with weaker health systems.”

Apple’s China reach

Cook’s comments about the coronavirus came as Apple reported all-time record highs for revenue and earnings during the company’s fiscal first quarter, which ended Dec. 28. The company benefited from strong sales of its newest iPhones — 11, 11 Pro and 11 Pro Max — as well as demand for its AirPods Pro and its services. 

China has become one of Apple’s most important markets over the past several years. In early 2015, China surpassed the US to become Apple’s biggest iPhone market. (The US later regained that status.) Apple’s revenue from Greater China rose 3.1% to $13.6 billion in the quarter. It lagged behind the Americas and Europe, but sales in some product areas soared during the period.

Apple saw double-digit growth for its iPhone business in Mainland China in the first quarter, Cook said, a turnaround from sluggishness Apple had experienced in recent quarters. It also had double-digit growth in its services business in China — which includes its App Store — and “extremely strong double-digit” growth for its wearables business, which includes the Apple Watch and AirPods, Cook said.

“In terms of the things that customers are responding to, iPhone 11 is doing particularly well there,” he said. 

While Apple sells a lot of its gadgets in China, it’s also tied to the country in another key way. Apple designs its phones in the US, but the devices — like many other electronics — are assembled in China. Many of its employees travel frequently between the region and Apple’s Cupertino, California, headquarters, and a slowdown in production in China could mean a shortage of iPhones and other Apple devices across the globe. 

“We’re closely following the development of the coronavirus,” Cook said on Jan. 28. “We’re donating to groups that are working to contain the outbreak. We are working closely with our Apple team members and partners in the affected areas, and our thoughts are with all of those affected across the region.”

CNET’s Jackson Ryan contributed to this report.

Originally published Jan. 28.
Updates, Jan. 28: Includes additional comments and background; Feb. 6: Adds more details on impact of coronavirus on Apple.