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Apple’s
warning Monday that it will miss March-quarter guidance due to coronavirus-related supply-chain and sales issues in China raises an obvious question: What other companies are vulnerable to the same conditions?
On the supply side, there are obvious implications for anyone that sources hardware from China-based contract manufacturers, which includes most companies that make personal computers, mobile phones, televisions, and other electronics goods. It also affects any company that typically sources, manufactures, and distributes parts made in China—and there will be second-order effects for companies that make parts in other places, as the entire supply chain slows. (If Apple can’t make iPhones, then all of their suppliers suffer the consequences.)
On the demand side, the primary effect is the one Apple (ticker: AAPL) cited—China retail sales are at a standstill. But there could also be secondary effects as a shortage of products hits retail shelves in other markets.
Bernstein analyst Toni Sacconaghi points out in a research note Tuesday that among the U.S. hardware companies he follows, the most exposed are PC makers
Dell Technologies
(DELL) and
HP Inc.
(HPQ). He estimates that Dell has 20%-35% exposure to the China market on the supply side, with high-single-digit revenue exposure. The vulnerability is higher at HP, which sources more than half of its hardware, and generates about 10% of revenue, in China.
Exposure is more limited for server manufacturers. Sacconaghi estimates
Hewlett Packard Enterprise’s
(HPE) China exposure at 3%-5% on the revenue side and 5%-10% on the manufacturing side. He puts
IBM’s
(IBM) exposure at under 5% for both revenue and manufacturing. More exposed is
Tesla
(TSLA), with an estimated 20% exposure to both the supply and demand sides of the market.
In a research note this morning, Citi analyst Jim Suva provides a lengthy list of companies ranked by China revenue exposure, including glassmaker
Corning
(GLW), which gets about a quarter of its revenues from China and operates a glassmaking facility in Wuhan. There are implications here for the electronics distributors
Arrow Electronics
(ARW), at 20% revenue exposure, and
Avnet
(AVT), at 15%.
Barron’s reached out to a number of companies with potential China exposure for comments. The bottom line is that none are quite ready to quantify the impact on financial results, but neither are they ignoring the issue.
- Dell told us that they didn’t have any immediate comment. The company is scheduled to report earnings later this month.
- An HP spokesperson said they “will have a better idea in a few days.” HP reports earnings on Monday.
- Avnet said in a statement that they “have not recorded any specific disruptions of our upstream supply chain…. Shipments to our customers are still flowing but we are experiencing longer lead times for new orders in some regions. Customers should place new orders promptly…. The situation is fluid and if we are informed of delays we will pass that information along to our customers as soon as possible.”
- Avnet also said it has decided to withdraw from participation in the Embedded World 2020 conference being held Feb. 25-27 in Nuremberg, Germany. “We are disappointed to miss the opportunity to connect with our partners, customers and the media at such an important event in the electronics industry, but believe this to be the right decision at this time,” the company said.
- Corning said that all of its business segments have a presence in China, where the company has about 5,300 employees, including a new facility in Wuhan that is just ramping up operations. “A vast majority of our employees in China have resumed work, and company facilities are operating following the extended Lunar New Year holiday,” the company said in a statement. “Where possible, some employees are working from home as a precaution to limit their exposure to Covid-19. In the meantime, Corning continues to monitor this evolving situation and stay in close touch with our customers as we support their operations.”
- HP Enterprise said the company “is monitoring events closely and is in constant contact with our suppliers…to understand any impacts they are experiencing to determine the best strategy to minimize the effects on our customers and partners.” The company also said it is “taking all of the appropriate measures to protect the health and safety of our team members and their families. Business travel to China is prohibited. We have implemented a global, 14-day work from home policy for those who have been to mainland China or in contact with someone who has been, and we have added incremental screening procedures for visitors to HPE locations and events.”
Shares of Apple, HP Inc., Hewlett Packard Enterprise, Avnet, Arrow, and Dell all closed modestly lower on Tuesday. The
S&P 500
was down 0.6%.
Write to Eric J. Savitz at [email protected]
