Microsoft: Coronavirus supply-chain disruption will hit revenues

The knock-on effects of efforts to contain the spread of coronavirus are now being felt in economies across the world

Graeme Burton
@graemeburton
27 February 2020

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Microsoft has warned that factory shutdowns in China caused by coronavirus - officially labelled COVID-19 - will hit the production of hardware devices, this year. The company's revenues in the current quarter will therefore be affected.

Furthermore, it added, the re-opening of manufacturing facilities in China is happening more slowly than anticipated.

As a result, Microsoft warned that its revenues will be lower than originally forecast for the current quarter, with sales of hardware devices in the company's More Personal Computing segment likely to be significantly lower than expected.

The company had provided broader than usual official guidance for this segment when it released its second quarter 2020 results on 29^th January. At the time, it pinned revenues at between $10.75 billion and $11.15 billion.

"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 at the time of our second quarter earnings call," the company advised in a statement today.

It continued: "As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface [devices] are more negatively impacted than previously anticipated. All other components of our third quarter guidance remain unchanged."

Microsoft was later today joined by PayPal, which cut its first-quarter revenue outlook, blaming the continued impact of coronavirus. "PayPal's business trends remain strong; however, international cross-border ecommerce activity has been negatively impacted by COVID-19," the company warned in a statement

The two companies' statements follow on from Apple's warning last week, when it indicated that prolonged factory shutdowns in China had already affected iPhone production. As a result, it said, sales of smartphones and other devices would be lower than anticipated.

The knock-on effects of the Chinese government's belated attempts to control the spread of coronavirus were already being felt at the begining of the month, while the annual Mobile World Congress (MWC) event in Barcelona was cancelled on 13th February due to fears of contagion.

China traditionally enjoys a complete shutdown around the turn of the Chinese New Year, which falls between 21^st January and 20^th February. This year, the New Year fell on 25^th January, but factories in many parts of China have been closed for a prolonged period as a result of the virus.

The Chinese New Year traditionally entailed 15 days of celebrations. While business today doesn't typically shut down for the New Year celebrations for this long, official public holidays around the Chinese New Year ensure that people typically have seven consecutive days of holidays, taking into account weekends.