Microsoft joins Apple and HP in paring back outlook due to virus

Seattle

MICROSOFT Corp became the latest tech giant to reduce its quarterly outlook based on the outbreak of the novel coronavirus, which 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 personal-computer software and Surface device business because the supply chain is returning to normal more slowly 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 deadly respiratory virus.

The world's largest software maker joins iPhone maker Apple and PC company HP in cutting estimates because of supply-chain disruptions related to the virus, known as Covid-19.

Merchants who sell on Amazon.com also are trimming ad spending on the e-commerce giant's marketplace, seeking to moderate demand amid worries they may run out of inventory of Chinese-made goods.

Microsoft's acknowledgement that the PC market is being hit reinforces investor concerns about broader consequences, said Dan Ives, an analyst at Wedbush Securities.

In recent days, anxiety has mounted about the spread of the virus outside of China.

For the first time, more cases were reported in countries other than China in the past 24 hours, the World Health Organization said late 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's Google are looking at manufacturing facilities in Vietnam and Thailand, the Nikkei Asian Review reported Wednesday.

Microsoft shares declined about 2 per cent 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 were trading at all-time highs earlier this month.

The reduced forecasts come as Covid-19's impact spreads through global companies in a range of industries. Booking Holdings on Wednesday said room nights booked will drop 5 to 10 per cent in the first quarter, compared with analysts' estimates for an increase of 5 per cent. The company said cancellations are rising.

For Microsoft, demand for Windows operating-system software is strong and has been in line with the company's forecasts, said the statement. 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 in March, Bloomberg estimates.

The More Personal Computing unit typically generates more than a third of Microsoft's annual sales.

Microsoft will have to account for supply issues with its Surface devices and lost software sales from Windows on PCs made by other manufacturers, who may be facing the same production and parts challenges in China.

The Redmond, Washington-based company is also preparing to release a new generation of Xbox video-game consoles in the fall, and will need to work through setting the final production lines and then building up inventory ahead of that release, a process that could be affected by lingering shutdowns in China.

The spread of the virus outside China also raises the chances of impact of work shutdowns, quarantines, store closures and conference and meeting cancellations in other countries where technology and other global firms have a significant presence. BLOOMBERG