Needham: COVID-19 Contagion To Hit Apple's March Quarter Revenues By 13%

Apple Inc. AAPL made a negative preannouncement last week concerning its March quarter, citing supply chain constraints and demand weakness stemming from the COVID-19 outbreak. An analyst at Needham quantified the likely impact of the pandemic on the company's financials.

The Apple Analyst

Laura Martin maintained a Buy rating and $350 price target for Apple.

The Apple Thesis

With new COVID-19 hotspots emerging in Italy, Iran and South Korea, the logical course of action is to trim estimates for Apple, Martin said. The analyst's new estimates for Apple now assume resumption of normal supply and demand by June 1, two months later than her previous assumption.

"The longer COVID-19 disruptions continue past June 1, the greater the threat to AAPL's Sept new product launches (including its 5G phone) and Christmas selling season revenue, which represented about 32% of annual revs in each of the past 3 years," Martin wrote in the note.

Citing low inventories and supply chain disruption, Martin lowered her unit sales estimates for AirPods and iPhone 11s for the March and June quarters. She also sees the possibility of Apple delaying the launch of its new smaller iPhone SE2 from the original schedule for a March quarter rollout.

As such, the analyst lowered revenue estimates for Apple's March quarter by 13% and June quarter by 7%, as supply chain bottleneck issues prevent inventory restocking and demand weakens in China. China accounted for 15% of Apple's revenues in the fiscal first quarter, and typically make up 15-20% of the total revenue.

"Because AAPL's FYE is 9/30/20, if APPL's Dec Q is disrupted, both FY20 AND FY21 would be negatively impacted and investors would be less likely to look through a weak FY20, we believe," Martin wrote.

AAPL Price Action

Following yesterday's 4.75% pullback along with the broader market, Apple shares were up 1.17% to $301.66 Tuesday morning.

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