Microsoft Corp became the latest tech giant to reduce its quarterly outlook based on the COVID-19 outbreak that is slowing production of computers and crimping sales of an array of consumer services and electronics.
In a statement on Wednesday, the company said it does not expect to meet earlier guidance for fiscal third-quarter revenue in the Windows PC software and Surface device business, because the supply chain is returning to normal at a slower pace than expected.
Last month, Microsoft gave a wider-than-usual sales target — US$10.75 billion to US$11.15 billion — for that division, citing uncertainty related to the spread of the respiratory virus.
The world’s largest software maker joins iPhone maker Apple Inc and PC company HP Inc in cutting estimates because of supply-chain disruptions related to COVID-19.
Merchants who sell on Amazon.com Inc also are trimming ad spending on the e-commerce giant’s marketplace, seeking to moderate demand amid worries they might run out of inventory of Chinese-made goods.
Questions about the virus’ economic ripples had already sent the S&P 500 Index down by 6.6 percent this week; Microsoft’s acknowledgment that the PC market is being hit reinforces investor concerns about broader consequences, Wedbush Securities analyst Dan Ives said.
“It fans the flames on Corona worries,” Ives said. “Apple and Microsoft now confirm the negative impact the Street had feared.”
In recent days, anxiety has mounted about the spread of the virus outside of China, where it originated.
For the first time, more cases were reported in countries other than China in the past 24 hours, the WHO said late on Wednesday, a significant development as new cases spread around the globe, with South Korea, Italy and Iran particularly hard hit.
As component makers and tech-gadget assembly companies in China continue to face production slowdowns due to quarantines and shuttered factories, US technology companies are reported to be scrambling for alternatives.
Microsoft and Alphabet Inc’s Google are looking at manufacturing facilities in Vietnam and Thailand, the Nikkei Asian Review reported on Wednesday.
Microsoft shares declined about 2 percent in late trading following the announcement. The stock has fallen in four of the last five trading sessions, along with the broader market, on concerns that the spreading health crisis could hurt the global economy and the technology sector.
The shares had been trading at all-time highs earlier this month.
Shares of Intel Corp, the biggest PC chipmaker, and rival Advanced Micro Devices Inc also fell in extended trading, as did PC makers Dell Technologies Inc and HP.
For Microsoft, demand for Windows operating-system software is strong and has been in line with the company’s forecasts, the statement said. The rest of the company’s outlook for the current quarter remains unchanged.
On average, analysts were predicting total sales of US$34.6 billion for the period ending next month, estimates showed.
Microsoft’s More Personal Computing unit typically generates more than a third of its annual sales.
Microsoft would have to account for supply issues with its Surface devices and lost software sales from Windows on PCs made by other manufacturers who might be facing the same production and parts challenges in China.
It is also preparing to release a new Xbox game console in the fall, and would need to work through setting the final production lines and then building up inventory ahead of that release.
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