Tech Industry Being Smashed By Coronavirus

The officially named "2019-nCoV" virus is a type of virus with flu-like symptoms. Those infected usually go on to develop pneumonia, but it's doing more than just seriously threatening people's health as it has wiped out more than $230 billion from Big Tech stocks. Shares of Big Tech companies took a hit last Monday as the companies started calling out its impact on their operations, causing fears of a global economic slowdown to resurface.

Altogether, Apple Inc AAPL, Facebook FB, Amazon.com, Inc. AMZN, Microsoft Corporation MSFT and Google's parent Alphabet Inc GOOGL, the five most valuable U.S. companies by market cap, lost more than $238 billion. And stock prices have continued to plummet as these five tech companies make up nearly one-fifth of the value of the S&P 500, which also dropped.

Microsoft

Microsoft co-founder Bill Gates said the coronavirus is starting to behave like the once-in-a-century pathogen he has been warning the world about for quite some time now as Microsoft issued a financial warning regarding the consequences of the pandemic.

While its fast-growing cloud computing business is not affected, the personal computing segment that includes Windows installations and Surface laptops and tablets, is expected to have lower sales comparing to what was told investors only one month ago. The financial warnings from Microsoft and Apple, two of the most valuable publicly traded companies in the world, only emphasize the vulnerability of technology supply chains in China.

Apple

Unlike Microsoft which does not sell much in China as the market accounts for less than two percent of the company's revenue, Apple has by far the largest exposure to China. It relies heavily both on manufacturing due to plants that make its best-selling products but also on Chinese consumers to buy its star product- the iPhone, of course.

The company warned that it does not expect to meet its own guidance for the March quarter. But we must state the obvious: Apple is fine because it has plenty of money. And the slowdown of the market in China just means that its insane profits will be a little less insane.  And this effect might even be only short-term. However, if the coronavirus epidemic intensifies, it can already make some serious trouble to Apple that shareholders should worry about.

Working Around The COVID-19

Apple's CEO Tim Cook replied to CNBC that the company is already seeking ways to work around the coronavirus. And Apple has reopened about half of its retail stores in China for limited hours. Also, it is restricting the number of customers that can enter the store.

Apple assembler Foxconn Technology Group is paying workers extra to return to plants, the iPhone site, but it isn't clear what capacity the factories can deliver at this time. Along with Apple, they are among the first corporations to try and quantify the impact of the epidemics. And considering Foxconn is China's largest private employer and a key partner to many of the world's most recognizable consumer brands, this company has become a high-profile symbol of how the outbreak is disrupting Chinese manufacturing and the entire world's supply of electronics.

But Apple is thinking ahead as it is already looking for alternative sources for parts to fill in where Chinese manufactures would likely fall behind. Because of demand impacts in China and a slower than expected manufacturing schedule, Apple supplied a wider than normal guidance for the second fiscal quarter earnings to be on the safe side, as it predicted between $63 billion to $67 billion in the quarter in an effort to account for the impact of the epidemic.

Meanwhile, Apple's RAM supplier, SK Hynix, is keeping coronavirus away by instructing possibly infected workers to stay at home. And this is exactly why Facebook and Google are much better-off since they are entirely absent from China in this regard. However, their stock was also hit with the wave of fears that the epidemics will further weaken global economy. So really, no one is safe.

Even Tesla Got Hit

Tesla Inc TSLA shares took a plunge on Monday amid a broader market sell-off mainly driven by investors' coronavirus concerns. It surely doesn't help that Tesla opened a Shanghai car plant and is heavily reliant on Chinese suppliers to make its electric cars. But perhaps an even bigger concern for Tesla Investors are the final results of an Autopilot-related crash investigation by the National Transportation Safety Board that is scheduled to be released on Tuesday afternoon in Washington D.C.

Although Tesla's value has exceeded that of General Motors Company GM and Ford Motor Company F combined, there are quite a few analysts who fear the Coronavirus is about to burst Tesla's bubble. And despite its recent success, Tesla has still a long way to go in order to achieve long-term profitability.

Outlook

It's not unusual that investors turn to tech stock during times of a macroeconomic weakness, supposedly hoping they are the ones who can change the course of the game. But it is also why many fear that it is tech stock that will drag us to yet another financial crash. 

And well done to these companies for having disclosed it early on – as this will encourage others companies to do so as well. Despite not being practiced so often, honesty is always the best policy. For better or worse. And again, stating the obvious: these companies are fine and they have shown they are able absorb this and perhaps even much worse.

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