Apple Kicks Off the Recession
Companies continue to announce that the Covid-19 virus outbreak will affect their earnings. The drumbeat is such that economists believe that entire nations will suffer from GDP problems. No company better signifies the impact on a business level than the most valuable company in the world, Apple Inc. (NASDAQ: AAPL). Apple also has the most valuable brand worldwide by many measures. It is among the largest in the world as measured by revenue. And it also has a multinational business, of which China, which it blamed for most of its woes, is only a modest part.
Apple said that its revenue will not meet expectations in the current quarter. The forecast was for revenue of as high as $67 billion. The company was not specific about the new figure, probably because it does not know yet. The major immediate causes were problems with its supply chain in China and a drop in consumer activity there. However, these are only two symptoms.
The supply of iPhones, many of them made in China, will be felt across the world. In its most recently reported quarter, Greater China revenue was $14 billion of Apple’s $92 billion total revenue. However, the domino effect of lower supply will undermine sales in much of the balance of the world.
Because the iPhone is at the center of Apple’s tech ecosystem, which covers 1.5 billion devices, any slowing also will affect Apple’s software and services business, which it claims are the engine of its future growth.
Apple is only the tip of an iceberg, which has included partial curtailments of the businesses in industries as diverse as airlines and fast-food companies. Car companies, some of which have China as their largest market, have both production and consumer demand problems. Auto companies are among the biggest businesses in the world. China passed the United States as the world’s top market in terms of unit sales in 2009. The roots of these operational problems due to the Covid-19 virus may be in China, but they have widened to Detroit, financially.
The global economy in general is teetering on a slowdown, and it has been since before the virus spread. Germany’s economy did not grow in the fourth quarter. Japan’s gross domestic product shrank by 6.3% in the period. Neither is expected to recover in the current quarter. China experts believe the country could show no GDP growth at all in the current quarter. That means three of the world’s four largest economies are in trouble.
The United States is the sole economy that is expected to grow this year, which included a forecast expansion of 2.0% to 2.5% in the first quarter. While Apple is a small part of the American economy, consumer electronics are not. A drop in U.S. iPhone sales due to supply shortages will spread. Too many companies source components in China. More consumer electronics shortages are ahead.
Apple is not the only company in trouble due to the global spread of the virus. It is, however, among the largest canaries in the coal mine. The United States may not be able to skirt a major economic slowdown in the first part of the year. That would put all of the four largest economies in trouble.