Microsoft Issues Financial Warning Because of Coronavirus

Microsoft Issues Financial Warning Because of Coronavirus


SEATTLE — Microsoft on Wednesday said its sales in the current quarter would be lower than it had previously predicted because of coronavirus-related disruptions in Chinese manufacturing.

While its fast-growing cloud computing business is not affected, the company said its personal computing business, which includes Windows installations and its Surface laptops and tablets, would record lower sales than it told investors to expect last month.

“Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated,” the company said in a statement.

Roughly a week ago, Apple warned it was cutting sales projections because of the public health crisis from the coronavirus.

Apple said the factories that make its iPhones were slower to reopen after the Chinese Lunar New Year than it had expected, and the company experienced lower demand for its products from Chinese consumers. At the time, all of its stores in China were closed, though some have since begun to reopen.

  • Updated Feb. 26, 2020

    • What is a Coronavirus?
      It is a novel virus named for the crown-like spikes that protrude from its surface. The coronavirus can infect both animals and people, and can cause a range of respiratory illnesses from the common cold to more dangerous conditions like Severe Acute Respiratory Syndrome, or SARS.
    • How do I keep myself and others safe?
      Washing your hands frequently is the most important thing you can do, along with staying at home when you’re sick.
    • What if I’m traveling?
      The C.D.C. has warned older and at-risk travelers to avoid Japan, Italy and Iran. The agency also has advised against all non-essential travel to South Korea and China.
    • Where has the virus spread?
      The virus, which originated in Wuhan, China, has sickened more than 80,000 people in at least 33 countries, including Italy, Iran and South Korea.
    • How contagious is the virus?
      According to preliminary research, it seems moderately infectious, similar to SARS, and is probably transmitted through sneezes, coughs and contaminated surfaces. Scientists have estimated that each infected person could spread it to somewhere between 1.5 and 3.5 people without effective containment measures.
    • Who is working to contain the virus?
      The World Health Organization officials have been working with officials in China, where growth has slowed. But this week, as confirmed cases spiked on two continents, experts warned that the world is not ready for a major outbreak.

The financial warnings from Microsoft and Apple — two of the most valuable publicly traded companies in the world — underscore the vulnerability of technology supply chains in China, said Dan Ives, a managing director at Wedbush Securities. Many tech companies in the United States rely on large factories in China, though some have started to shift to other countries like Vietnam.

“When bellwethers like Microsoft come out and talk about the supply chain and how it will negatively impact PC demand, it fans the flames of some of the worries out there for the broader supply chain,” he said.

Microsoft’s stock fell about 1 percent in after-market trading on Wednesday evening.

Personal computing, which includes hardware sales as well as Windows installed on computers that other companies produce and sell, accounts for roughly a third of Microsoft’s revenue.

In January, the company said it expected to have between $10.75 billion and $11.15 billion in sales for the segment, a wider-than-normal range reflecting the uncertainty at the time. The company did not provide a new sales estimate.

Unlike Apple, Microsoft does not sell much in China, and the market accounts for less than 2 percent of the company’s revenue. While its Windows and Office products are used in China, the software is often pirated.

Having two giants disclose that the coronavirus is squeezing their finances will put pressure on competitors to follow suit, said David Larcker, a professor of corporate governance at the Stanford Graduate School of Business.

When companies make unusual financial disclosures, they need to juggle their duty to inform shareholders, their desire to get ahead of a big surprise and the need to keep some information secret from competitors, he said.

“It may be they are still trying to understand this,” Mr. Larcker said. “It may not be a satisfying answer, but it’s a truthful one.”



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