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How coronavirus could boost iPhone 12 sales

Daniel Howley
Technology Editor

The continuing fallout from the coronavirus outbreak is expected to bring serious pain to Apple (AAPL) when it reports its earnings for its fiscal Q2 2020. The company already made as much clear after it announced it wouldn’t hit its previous revenue guidance for the coming quarter, and chose not to offer a new guidance range.

But analysts and investors aren’t responding with despair over lost sales, which could total between $4 billion and $7 billion across its product lines in the second quarter. Instead, they’re focusing on the launch of Apple’s next-generation iPhone this fall, which is expected to be the first iPhone with 5G capabilities.

According to D.A. Davidson Analyst Tom Forte, tighter iPhone 11 supplies should add to the already high expectations for iPhone 12 sales.

“So the way that I’ve been thinking about it for Apple is they have a new product cycle usually each fall,” Forte told Yahoo Finance’s On The Move. “So I think at some point we’re going to talk about lost sales for the iPhone 11, but potentially better sales for the iPhone 12. So an argument there is that it’s not lost sales.”

Supply chain issues

Apple has already warned that it will suffer inventory shortages as its production partners in China continue to work to get back to full capacity following the Lunar New Year, which was extended by Chinese officials in an attempt to blunt the spread of the coronavirus, otherwise known as CORVID-19.

BEIJING, CHINA - JANUARY 07: The Apple logo is seen on the window at an Apple Store on January 7, 2019 in Beijing, China. Apple Inc. lowered its revenue guidance last week, blaming China's slowing economy and weaker than expected iPhone sales, as the company's chief executive officer Tim Cook said in a letter to investors the sales problems were primarily in its Greater China region that accounts for almost 20 percent of its revenue and includes Hong Kong and Taiwan. (Photo by Kevin Frayer/Getty Images)

What’s more, the company explained that store closures in China, coupled with localized quarantines, will cut into sales in the country.

In an analyst note, UBS’ Timothy Arcuri wrote that on a month-over-month basis, Apple’s iPhone demand was down 28%, which is worse than the normal 21% decrease.

“COVID-19 has clearly impacted overall sales in January but AAPL’s negative pre-announcement from last week suggests February numbers are likely to be far worse due to both supply and demand issues related to the virus outbreak — a situation so fluid that AAPL didn’t even provide a new range,” he wrote.

But like Forte, Arcuri writes that investors are looking to the fall launch of the iPhone 12, rather than the current situation linked to the coronavirus.

“Even so, investors are generally more focused on the fall launch and we believe there is still no reason to become materially more cautious on 2021 expectations — the key for the stock at this point,” he wrote.

Consumers are locked in

The thought is that with fewer iPhone 11s available, consumers may simply hold off on purchasing new phones, and buy iPhone 12s instead. And there’s plenty of reason to believe Forte’s thesis.

Apple and its cohorts, Amazon (AMZN) and Google (GOOG, GOOGL), do a good amount of work ensuring you stay locked in their respective ecosystems. For Apple, that means giving users iCloud accounts, offering accessories like the AirPods and Apple Watch, and providing services like Apple Music.

So while Apple may miss out on sales of the iPhone 11, chances are users will stick around until the iPhone 12 is available for purchase, and make the jump to that device.

There’s already been a good deal of hype around the iPhone 12 for its expected 5G capabilities, and a build-up in demand will only add to the amount of consumers angling for the phone. 

That, however, all depends on when the situation on the ground in China improves and workers can head back to manufacturing facilities. 

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Got a tip? Email Daniel Howley at danielphowley@protonmail.com or dhowley@yahoofinance.com, and follow him on Twitter at @DanielHowley.

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