Which Companies Will Be Most Impacted by the CoronaVirus (officially COVID-19)

As of February 14, 2020, the CoronaVirus had claimed the lives of 1,382 individuals, with more than 64,000 known cases of the virus. That is a very high mortality rate for a virus, at 2.2%. Most of us think about getting over a cold or flu within a few days or weeks, so having a deadly virus like COVID-19 is alarming and causing an “abundance of caution” for a great many people around the world, particularly any company that has a factory or store in China. Many U.S. companies fall into that category – particularly in the technology industry. 
 
There is a cruise ship quarantined in Japan, where sadly one person passed away. (There has also been a death in the Philippines.) Travel in certain areas of China has been severely restricted. On Feb. 12, 2020, Mobile World Congress 2020 Barcelona, the largest mobile communications trade show, was canceled. One of the world’s largest Chinese factories, FoxConn, has been dark since the news of the virus hit, and is still off-line. Apple headquarters and retail stores in China are closed, as are Tesla stores, though Tesla claims that their Gigafactory is back to work. Schools have been conducting classes online.
 
As Federal Reserve Board Chairman Jerome Powell told Congress on Feb. 7, 2020, “Possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook.” Before news of the virus, the economy was predicted to grow 2.0% in the U.S. in 2020 and 5.9% in China. Economists have warned that China could dip as low as 3.8%. 

Although the multinational companies are scrubbing the Internet of news of their store and factory closures, it seems pretty clear that the factory closures will cause global supply chain disruptions and inventory backlogs and lackluster product sales in China in the first quarter of 2020. The only real questions are, “How much?” and “Which countries and companies will be impacted the most?”
 
Which Countries and Companies Will be Impacted the Most By COVID-19?

• China is the Factory to the World: Makers of the world’s electronic devices will experience supply chain disruptions and backlogs. Apple will be impacted in both sales and the supply chain. Samsung recently moved their factories to Vietnam, Thailand and Indonesia, so the impact on Samsung’s inventory could be minimal. The fashion industry, which is already seeing major retailers and brands go bankrupt in the Retail Apocalypse, will also be hit.  
• China Buys a Lot of Technology & Fashion from the U.S. and Europe. 15% of Apple’s revenue comes from China, with 30% coming from Asia (including Japan). (Email or call our offices if you’d like access to the COVID-19 Stock Report Card.) Qualcomm and Broadcom revenues are concentrated heavily in China – with 47.8% and 35% of revenues coming from China, respectively. Microchips from Intel and AMD sell in China, as do artificial intelligence software (Nvidia, Micron & Xilinx). China accounts for roughly 12% of Nike’s global sales. See below for a chart of select companies with the percentage of revenue that comes from China.  

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• The FoxConn factory in China, which produces a substantial portion (40% more or less) of the world’s consumer electronic goods for companies like Apple, Amazon, Microsoft, Sony, Nintendo and more, is actually a Taiwanese based company. So, ETFs and mutual funds based out of Taiwan, that hold a significant portion of Hon Hai, as most do, will be impacted by the factory closure.
• Tesla. Tesla’s stores and Chinese Gigafactory were closed due to the coronavirus. Tesla reported in its 8K filing on Feb. 13, 2020 that the factory is open again. (No word on the stores.) However, the Chinese government is in charge, and any factory or store reopening will have to get government approval. At this point, China only accounts for about 12% of Tesla’s revenue. However, increased sales and production in China are built into the growth strategy for Tesla, particularly now that the U.S. tax credit for Tesla vehicles has expired. The factory and store closure will undoubtedly have a negative impact on Tesla’s 1st quarter. 
• Airlines and Auto Manufacturers. Canceled flights mean lower revenue in the 1st quarter of 2020, continuing until the virus is contained. Current expectations are that the peak occurs in March. Auto manufacturers which rely upon Chinese parts could have supply chain disruptions and a backlog of orders.

 
Many companies are trying to reduce the impact of the virus on their next earnings report by widening their forward projections. Qualcomm has a forward outlook on revenue of $4.9-$5.7 billion, with non-GAAP earnings per share of $0.80 to $0.95. That is an unprecedented $800 million window of revenue room to be right in. Apple did the same, projecting revenue of $63-$67 billion, with a $4 billion spread. If earnings hit the low end of the target range, then the headlines could be kind. A miss might create concern, at minimum, and alarm if the miss is, well, alarming.
 
The bottom line is that the coronavirus, and the important steps that have been taken to contain the outbreak’s spread, will slow down the world’s economy. Store closures, factory suspensions, travel restrictions and health concerns have put multinational manufacturing on hold, Chinese consumer spending on pause and global citizens on high alert. With any luck, the virus will be contained quickly, and the mortality rate will drop to zero. However, things play out, there will be a negative impact on the next earnings season in April, and on global growth in 2020.
 
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

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