- The coronavirus impact has been stronger than Apple had previously anticipated as the tech giant is forced to warn investors of lower quarterly sales
- Apple’s supply chain in China may be disrupted which may hurt iPhone sales globally
- Stock opens around 3% lower with a risk now to the downside
Shares of Apple are trading nearly 3% lower in pre-market trading after the tech giant warned that the coronavirus epidemic is likely to impact the first-quarter sales.
Fundamental analysis: Lower iPhone supply globally
In a letter to investors, the Silicon Valley giant said it does not expect to meet the quarterly revenue targets due to lower iPhone supply globally and lower demand in China due to the deadly coronavirus outbreak.
Apple previously announced a decision to close some of its shops in China, or reduce working hours for some others. As many factories are still shut, supply chains are disrupted, which directly impacts Apple’s huge demand on a global scale.
“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,” said Apple in a letter.
The company previously communicated that it expects to generate between $63 billion to $67 billion in sales for the fiscal second quarter. Usually, Apple doesn’t use that wide range to predict its sales, but it did it so on purpose due to coronavirus uncertainty.
“As you can see from the range, anticipates some level of issue there. Otherwise, we would not have a $4 billion range,” CEO Tim Cook said at the time.
Analysts believe that Apple will be hurt more than other major tech companies due to its huge reliance on China.
“The magnitude of this impact to miss its revenue guidance midway through February is clearly worse than feared,” Wedbush analyst Daniel Ives wrote in a note.
Technical analysis: Risk is to the downside
Apple stock price trades around 3% lower today following the release of a letter to investors yesterday. The price closed near the record highs yesterday as the risk is now clearly to the downside.
“If Apple shares were traded cheaply, that might not matter much. But when they are trading at a record high, investors will be surely tempted to sell,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
As seen in the chart above, the price action has been trapped within an aggressive upward parallel channel for the past six months. A potential break to the downside would open the door for a bigger pullback. For this to happen, the bears must force a daily or weekly close below $300. All in all, this is a realistic scenario if investors see this as a legitimate opportunity to sell Apple stock.
Shares of Apple have opened lower today in New York after the tech giant warned that it is unlikely to meet its sales guidance for the current quarter. The bullish momentum may change for the Apple stock price as there is plenty of room for a correction lower.