How the Coronavirus Outbreak Is Finally Hurting Silicon Valley

"Apple is heavily exposed," warned one expert—but it's not the only US-based tech company to bet heavily on China.

Apple components are assembled all over China, and the flow of both workers and key parts are still stalled due to the coronavirus outbreak. STR/AFP/GettyImages

Since its discovery and spread worldwide from the major Chinese city of Wuhan, the novel coronavirus has shut down airports, canceled tech conferences and hurt cruise ship companies (because who wants to spend their vacation on a floating petri dish?).

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Now comes the reckoning for the consumer-facing side of the tech industry. The Apple (AAPL) Store—and wildly popular consumer products like iPhones and AirPods—cannot exist without a steady supply of hardware from Chinese factories.

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And with life in China all but halted thanks to the virus, factories supplying Apple worldwide have been shut down for weeks—in part because of the Chinese New Year holiday, but mostly because of the coronavius.

These factories are only now slowly reopening, but not in time to avoid a blow to Apple’s long-term finances, as the company delicately informed investors on Monday. This may not be that big of a deal if you own Apple stock—after all, your company just recorded record quarterly revenue of $91.8 billion, with profits of $22 billion—but it’s also a sign that this moneymaking march could at last slow down.

Both demand for Apple products inside China, the world’s largest consumer market and an increasingly vital buyer of luxury goods, as well as the origin point for the global supply of the company’s signature product, the iPhone, have been limited thanks to the coronavirus, the company said in an investor statement on Monday.

“All of our stores in China and many of our partner stores have been closed,” said the company, who saw sales of its new iPhone 11 and iPhone 11 Pro dip throughout most of 2019. “Additionally, stores that are open have been operating at reduced hours with very low customer traffic.”

As The New York Times reported on Monday, all 42 of Apple’s stores in China have been shut down since January and only seven have yet to reopen, and with limited hours. Factories owned and operated by Taiwanese conglomerate Foxconn, which produces Apple products, have yet to publicly state how far behind production goals they are, but it’s rumored they’re below 50% capacity, the newspaper reported.

Though the main Foxconn factories that assemble Apple products are not in Wuhan and thus somewhat isolated from the virus itself—if not the panic—”Apple is heavily exposed,” Daniel Ives, managing director at Wedbush Securities, told the paper. “It confirms the worst fears that the iPhone impact was going to be more dramatic than expected.”

Further, as the Times noted, Apple components are assembled all over China, and the flow of both workers and key parts are still stalled, with government health checkpoints slowing both—for now and for the immediate future.

Apple is not the only major California-based consumer-facing technology company to bet heavily on China. Tesla (TSLA)’s first major factory out of the United States “opened” to much fanfare earlier this year (though it has yet to reach full production, and is in Shanghai, far away from the coronavirus epicenter in Hubei province).

Again, to repeat the obvious: Apple is fine. Apple has plenty of money. A slowdown in China just means that Apple’s insane profits will be a little less insane—at least for now. If the coronavirus problem continues, or intensifies, it will spell more serious trouble for Apple and the company’s shareholders down the road. At the same time, that the company can absorb this and much worse is sign of how strong Apple’s been.

How the Coronavirus Outbreak Is Finally Hurting Silicon Valley