Apple Faces Another China Risk Ahead of New Product Launch?..."Supply Concerns Due to Wuhan Pneumonia"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Seulgina Cho] Apple, which recorded its highest quarterly sales thanks to the popularity of AirPods and other products, is once again caught up in China risk. Concerns are rising that the outbreak of the novel coronavirus infection originating in China (Wuhan pneumonia) spreading worldwide will disrupt the supply of products, including the new iPhone scheduled for release in the first half of this year. Apple has manufacturing plants in China, including the Wuhan area.

According to economic broadcaster CNBC, Ming-Chi Kuo, an Apple specialist analyst at TF International, stated in an investor note released on the 29th (local time), "Consumer confidence in China has declined due to the novel coronavirus, which will impact Apple," adding, "Factories producing Apple products may face large-scale production risks related to the novel coronavirus." Products expected to face supply disruptions include Apple's new wireless chargers, premium headphones, and the affordable new iPhone models.

Apple employs about 10,000 people across China to produce major products such as the iPhone and releases them worldwide. It has been confirmed that there are many suppliers in the Wuhan region as well. The day before, Apple CEO Tim Cook said, "We are closely monitoring the supply chain in the Wuhan area," and announced plans to close some factories until February 10. Apple has also decided to restrict employee business trips to China except in urgent management cases.

Some have already raised the possibility of delaying the release of the affordable model 'iPhone SE2,' scheduled for launch this spring. CEO Cook has confirmed that the impact of the novel coronavirus is already being seen in Apple's retail sales. Apple has suffered from China risk before, such as a sharp decline in performance early last year due to the US-China trade war. The Chinese market accounts for about one-fifth of Apple's sales.

On the same day, analyst Ming-Chi Kuo pointed out that many people wearing masks to prevent the novel coronavirus could negatively affect the experience of existing iPhone users. He said, "Due to technological limitations, face recognition does not work when users wear masks," adding, "Apple is currently developing an iPhone with a fingerprint recognition system, but until its release, users wearing masks will have a poor experience with Apple's Face ID authentication system."

The previously canceled plan to release Apple's wireless charging mat last year was also mentioned. CNBC evaluated, "Considering that the release of the existing charging mat AirPower was canceled last year, the launch of a small wireless charging mat is surprising."

On the same day, CNBC reported in another article that the smart watch Apple Watch and wireless earphones AirPods are becoming new growth engines for Apple.

Apple's revenue and operating profit for the fourth quarter of last year (first quarter in the US) announced the day before were $91.82 billion and $2.24 billion, respectively, exceeding market expectations. This represents an increase of 8.9% and 9.5% compared to the same period last year. Especially, thanks to the success of the iPhone 11 and AirPods, Apple achieved the highest quarterly sales ever. In particular, Apple's accessory segment, which includes wearables and smart speaker HomePod, recorded sales of $10.01 billion in the fourth quarter of last year. This far exceeds the Mac segment sales of $7.16 billion.

CEO Cook said, "Most of the accessory segment sales came from wearable devices," comparing the segment to Fortune 150 companies. CNBC suggested, "This implies that wearable devices alone sold about $20 billion," and evaluated, "There are many signs that wearable products will deliver another outstanding performance this year. A hit product that exceeded expectations." Apple's stock price rose more than 2% in the New York stock market that day.

This content was produced with the assistance of AI translation services.