Microsoft has become the latest technology giant to reduce its quarterly outlook based on the outbreak of a novel coronavirus that’s slowing production of computers and crimping sales of an array of consumer services and electronics.
In a statement on Wednesday, the company said it doesn’t expect to meet earlier guidance for fiscal third-quarter revenue in the Windows PC software and Surface device business because the supply chain is returning to normal at a slower pace than expected. Last month, Microsoft gave a wider-than-usual sales target — US$10.75-billion billion to $11.15-billion — for that division, citing uncertainty related to the spread of the deadly respiratory virus.
The world’s largest software maker joins iPhone maker Apple and PC company HP in cutting estimates because of supply-chain disruptions related to the virus, known as Covid-19. Merchants who sell on Amazon.com also are trimming ad spending on the e-commerce giant’s marketplace, seeking to moderate demand amid worries they may run out of inventory of Chinese-made goods. Questions about the virus’s economic ripples had already sent the S&P 500 Index down by 6.6% this week; Microsoft’s acknowledgment that the PC market is being hit reinforces investor concerns about broader consequences, said Dan Ives, an analyst at Wedbush Securities.
“It fans the flames on corona worries,” Ives said. “Apple and Microsoft now confirm the negative impact the Street had feared.”
In recent days, anxiety has mounted about the spread of the virus outside of China, where it originated. For the first time, more cases were reported in countries other than China in the past 24 hours, the World Health Organisation said late on Wednesday, a significant development as new cases spread around the globe, with South Korea, Italy and Iran particularly hard hit. Globally, 2 771 have died and 81 317 people have been infected.
As component makers and tech-gadget assembly companies in China continue to face production slowdowns due to quarantines and closed factories, US technology companies are reported to be scrambling for alternatives. Microsoft and Google are looking at manufacturing facilities in Vietnam and Thailand, the Nikkei Asian Review reported on Wednesday.
Shares fall
Microsoft shares declined about 2% in late trading following the announcement. The stock has fallen in four of the last five trading sessions, along with the broader market, on concerns that the spreading health crisis could hurt the global economy and the technology sector. The shares had been trading at all-time highs earlier this month. Shares of Intel, the biggest PC chip maker, and rival AMD also fell in extended trading, as did PC makers Dell Technologies and HP. Dell reports earnings on Thursday.
For Microsoft, demand for Windows operating system software is strong and has been in line with the company’s forecasts, according to the statement. The rest of the company’s outlook for the current quarter remains unchanged. On average, analysts were predicting total sales of $34.6-billion for the period ending in March, according to estimates gathered by Bloomberg. The More Personal Computing unit typically generates more than a third of Microsoft’s annual sales.
Microsoft will have to account for supply issues with its Surface devices and lost software sales from Windows on PCs made by other manufacturers who may be facing the same production and parts challenges in China. The Redmond, Washington-based company is also preparing to release a new generation of Xbox videogame consoles, and will need to work through setting the final production lines and then building up inventory ahead of that release, a process that could be affected by lingering shutdowns in China.
The spread of the virus outside of China also raises the chances of impact of work shutdowns, quarantines, store closures, and conference and meeting cancellations in other countries where technology and other global firms have a significant presence. — Reported by Dina Bass, (c) 2020 Bloomberg LP