China iPhone sales drop 61% year-over-year, report says, as Apple struggles with coronavirus
New details out of China suggest Apple’s coronavirus problems may be worsening, as iPhone demand takes a major hit.
Apple sold 494,000 iPhones in China in February, a 61% drop compared to the 1.3 million the company sold in February 2019, according to data released on Monday from China Academy of Information and Communications Technology (CAICT). Apple hasn’t confirmed the sales data, but the steep decline suggests coronavirus, which has impacted China more forcefully than any other country in the world, is significantly affecting Apple’s core smartphone business.
Last month, Apple announced that it wouldn’t meet its $63 billion to $67 billion guidance for the quarter ending in March because of coronavirus’s impact on its business. Apple said that a combination of less output from manufacturing plants in China and lower-than-expected demand due to closed Chinese stores would force it to miss its revenue guidance.
Apple’s announcement stopped short of adjusting its guidance, and failed to include data points to illustrate how big of a problem the iPhone maker is having in China. The CAICT report on Monday was one of the first concrete examples of Apple’s China woes. Apple did not respond to Fortune‘s request for comment on the report.
In an interview with Fortune on Monday, Needham & Co. analyst Laura Martin says Apple’s China sales will account for about 15% of the company’s total revenue during the March quarter. And considering the iPhone accounts for vast majority of Apple’s China sales, the 61% drop in Chinese iPhone sales in February, alone, could shave billions of dollars off Apple’s quarterly performance.
“Declining iPhone sales are a proxy for iPad, AirPods, and other products Apple sells,” Martin adds. She says Apple’s sales across tablet, accessories, and other businesses could be off just as much as iPhone.
And with coronavirus showing no signs of going away, Apple’s woes have only just begun. “March will be worse,” Martin says.
Only worrying about Apple’s problems in the first quarter is short-sighted, says Omdia analyst Wayne Lam. He says there are still major questions on whether Apple’s major manufacturing partner Foxconn can recover quickly and get back to full production capacity anytime soon, despite the company’s claims that it will resume full capacity by the end of the month. And as coronavirus continues to spread, it’s possible other countries could feel the effects China already has on consumer demand.
“It isn’t too far-fetched that the global economies may sink into a recession due to the lack of productivity and consumption during this time,” Lam says.
William Ho, an analyst and manufacturing industry expert at 556 Ventures, says coronavirus will remain a global concern for the foreseeable future, creating more strain on companies like Apple that rely on China for their manufacturing output.
“With no coronavirus solution in sight, the bigger issue is future quarters as it relates to a global economic downturn,” Ho says of Apple’s business.
Consumer outlook is something Martin sees as the next big story for Apple. She notes that most industry experts have focused on Apple’s supply chain. But the latest Chinese data shows Apple now faces a potentially major consumer problem.
“People are not getting paid an hourly wage because they’re not at work,” Martin says. “That gives them less disposable income to buy an iPhone because they’re dipping into their savings and buying food.”
Not all is lost. Lam says Apple’s business will eventually rebound, but he doesn’t believe Apple will recover its lost revenue and return to stability until the second half of the year, when manufacturing should resume full capacity.
Indeed, adjusting manufacturing might be one of the biggest lessons Apple should learn from coronavirus, Martin argues. Apple’s near-universal reliance on Chinese manufacturing partners has constrained its supply and put unnecessary pressure on its business.
Before the next epidemic, Apple should develop alternatives to its Chinese suppliers, Martin says.
“Over the next three to five years, Apple must have alternative sources for every part in its hardware,” he says. “It’s like buying an insurance policy.”
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