By Therese Poletti, MarketWatch
Now that Microsoft Corp., the world’s most valuable tech company, warned investors on Wednesday that it will not meet its recent guidance for its personal-computing business because of the impact of the coronavirus on the supply chain, the rest of the PC universe will likely follow suit.
The supply chain in China “is returning to normal operations at a slower pace than anticipated,” Microsoft /zigman2/quotes/207732364/composite MSFT +1.02% said. “As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated.”
When the fourth-quarter earnings season started in mid-January, reports of the COVID-19 coronavirus was still in its early days and not discussed on the first round of company conference calls. But by the next week, the rapidly evolving situation had started to affect global markets, as the reports grew worse, coinciding with the Lunar New Year holiday. A few tech companies started getting asked questions about any impact from the coronavirus, to either the supply chain or in consumer demand. Initially, Apple Inc. /zigman2/quotes/202934861/composite AAPL -0.10% , which reported on Jan. 28, said the situation was emerging and its executives gave a wider than normal range for its revenue outlook, due to the uncertainty.
Tesla Inc. /zigman2/quotes/203558040/composite TSLA +3.62% was actually one of the earliest tech companies to predict some impact to its earnings, because its Shanghai factory had to temporarily shut down under a government mandate. Tesla predicted a slight impact on its profitability, because profits from its Model 3 in China are still in the early stages.
A few weeks later, /zigman2/quotes/209509471/composite CSCO +4.88% /zigman2/quotes/209509471/composite CSCO +4.88% Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +4.58% gave an actual number, saying that it expected its revenue to take a hit of about $100 million, as it became more clear that the impact of the epidemic would also hit consumer-spending patterns, taking into account quarantines and business closures. Apple followed over President’s Day weekend with a warning that it would miss its revenue outlook because of manufacturing constraints on the iPhone, which is mostly manufactured in China. Apple also said consumer demand was affected for its products in China.
Daniel Zhang, the chief executive of Alibaba Group Holdings Ltd. /zigman2/quotes/201948298/composite BABA +3.96% , one of China’s largest tech conglomerates, called the coronavirus a “black swan event.”
So it is to be expected that the remaining tech companies to report in this earnings season are likely to forecast some negative impact, either due to supply-chain issues or predictions of a hit to consumer demand. Lenovo /zigman2/quotes/205368244/delayed HK:992 -1.19% , the Chinese PC and server maker, said that demand for its products in China was impacted, but the rest of the world was still strong, and that most of its factories in China had reopened, though on a limited basis due to transportation and travel restrictions.
On Thursday, Dell Technologies Inc. /zigman2/quotes/203822527/composite DELL +8.91% is expected to report earnings. Comments about demand and the supply chain in its PC and server business will be likely to include any impact the company can predict from the coronavirus. Earlier this week, when HP Inc. /zigman2/quotes/203461582/composite HPQ +0.87% /zigman2/quotes/203461582/composite HPQ +0.87% /zigman2/quotes/203461582/composite HPQ +0.87% reported its fiscal first quarter , with slight growth in PCs and a drop in printing revenue, CEO Enrique Lores said that the situation regarding the coronavirus is fluid. “Our number one problem is manufacturing capacity, both for personal systems, for print hardware and supplies,” he told analysts.
Both Intel Corp. /zigman2/quotes/203649727/composite INTC +1.99% and Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD +3.98% were among the companies to report early in the cycle and have not yet made any comments about the impact of the coronavirus on PC demand or the supply chain.
On Monday, David Wong, an Instinet LLC analyst, warned that risks posed by the coronavirus to the global semiconductor industry had grown in recent weeks.
“We think that many investors, and companies, may have underestimated the risk of the current issues impacting electronics end market demand through 2020,” Wong wrote. “We think there may be risk to demand in most electronic end markets, though we believe the end markets associated with consumer purchases might have the most potential downside. We remain cautious on the chip industry overall and selective in our chip and chip-equipment stock picks.”
Now with Apple and Microsoft, the two most valuable companies in tech, warning about the impact of the coronavirus, other shoes will probably be dropping. The refrain, so popular last year, about a better second half, will feasibly become the mantra of many tech CEOs again this year.