Coronavirus will take a bite out of Apple’s iPhone business. The question facing analysts: ‘How big?’

February 4, 2020, 12:00 AM UTC

In a note to investors on Monday, TF International Securities analyst Ming-Chi Kuo reduced his first-quarter iPhone shipment prediction by 10% to a range of 36 million to 40 million devices, due to the coronavirus outbreak. Kuo says his firm’s checks reveal a disruption in Apple’s supply chain that could extend into the second quarter, if coronavirus mitigation efforts don’t take hold.

Coronavirus, a highly contagious respiratory illness that was first discovered in Wuhan, China, has taken the lives of more than 360 people in China, as the number of confirmed cases has grown to more than 17,000 worldwide. To stop coronavirus, China has all but shut down areas most heavily affected by the outbreak. In response, companies have also closed, stopping production of their goods.

Over the weekend, Apple, which operates several stores across China, said it would close the retail stores and offices it operates in China until February 10.

But as Kuo’s note suggests, Apple’s exposure to coronavirus goes beyond retail. The company is heavily reliant upon China to manufacture iPhones, and workers not producing devices and shipping them worldwide will have a direct impact on Apple’s business.

What’s harder to quantify, however, is whether Kuo’s prediction on iPhone shipments is realistic or overblown. Fortune talked to several analysts on Monday to get their takes on what might happen if the coronavirus outbreak continues unabated.

Loup Ventures analyst Gene Munster is taking a very different position than Kuo. “I don’t think coronavirus will impact Apple shipments, given the company has a 3-5 weeks of iPhone inventory,” Munster says. But, the longtime Apple watcher cautions, each week of production shutdown beyond week four will reduce iPhone shipments by 8% on the quarter.

Meanwhile, 556 Ventures analyst William Ho is taking a wait-and-see approach to the impact of coronavirus on the iPhone. In terms of production, things appear to be going fine for Apple, he says, but unit sales may be a different story.

“All the consumer psychology of staying indoors in affected areas can contribute to a slowdown in sales,” Ho says. Whether that will play out, however, is unclear.

On the other hand, Forrester analyst Frank Gillett says it will take just seven days of “lost production” at Apple’s manufacturing facilities to cause a 10% reduction in iPhone shipments. While he couldn’t say whether Apple’s supply chain is getting hit that hard, he does believe coronavirus is a problem for the iPhone maker.

“Because the supply chain is so tightly coordinated and does air shipments, any closures will impact production pretty quickly,” Gillett says. “Unless they can work lots of overtime, it will be difficult to make up for the closures and any lost production.”

Timing is everything

IHS Markit analyst Wayne Lam agrees with Gillet’s perspective, saying “The situation in China is basically the worst possible from a manufacturing labor perspective.”

But the coronavirus outbreak’s timing might play to Apple’s benefit, Lam argues. Because it started around the Chinese New Year, Apple and its manufacturing partners were already planning a slowdown in production due to holiday gatherings.

There’s another timing issue might helpful Apple’s stem potential losses due to the coronavirus.

“Apple’s exposure may be mitigated thanks to seasonality,” Futuresource market analyst James Manning Smith says. And because Apple generates a much larger share of its annual sales in the fourth quarter compared to the first, the long-term impact on iPhone shipments could be less than they would be otherwise.

“Should the coronavirus outbreak be controlled in the coming months,” Manning Smith says, “Apple may be able to shift demand to another quarter and mediate any supply issues encounter in the first half.”

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