The Wuhan coronavirus threatens to cut China's smartphone sales in half and may spell trouble for Apple's iPhone production, analysts say

• Smartphone shipments in China could decrease by between 40% and 50% between Q4 2019 and Q1 2020 because of the coronavirus, according to market research firm Canalys.
• Analysts at Wedbush Securities have also said that between 3 million and 5 million of Apple's iPhones are at risk of being pushed from the March quarter to the June quarter due to coronavirus-related setbacks.
• China is the world's largest smartphone market and Apple's third-largest market behind the Americas and Europe.
• AirPods production may also fall behind, according to Wedbush. The research note comes after Bloomberg reported on Friday that Apple's key assembly partner Foxconn had told employees not to return to work on February 10.
• Visit Business Insider's homepage for more stories.

Just as global smartphone shipments finally started to rebound after enduring several consecutive quarters of declines, the Wuhan coronavirus is disrupting production at the heart of the global supply chain- threatening to chop phone shipments in the world's largest smartphone markets in half.

Analysts at market research firm Canalys have forecast that smartphone shipments in China could drop by between 40% and 50% between the fourth quarter of 2019 and the first quarter of 2020 because of delays related to the coronavirus. That's a noticeable increase from its previous estimates of a 7% decline.

Foxconn, Apple's biggest iPhone assembler, also told employees on Friday not to return to work on February 10, the day that the plant was originally scheduled to resume regular operations, according to Bloomberg. Apple also said last week that it would extend store closures in China due to the coronavirus outbreak, which has now killed more than 900 people globally and has infected more than 40,000.

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It's unclear precisely how severly the coronavirus spread will impact Apple's business, but the company said in its fiscal first quarter earnings report that it had factored any ramifications into its guidance for the second quarter of 2020 - which it predicts will fall between $63 billion and $67 billion. But that was back at the end of January when the impacts of the outbreak were less clear.

A new research note from Wedbush Securities, which was written by analysts Dan Ives and Strecker Backe, says that between roughly 3 million and 5 million iPhones are at risk of being pushed from the March quarter to the June quarter if supply chain issues persist for another two to three weeks or longer.

That's an increase from Ives' estimates when speaking to Business Insider last week, when he said that about one million iPhones could shift to the June quarter if closures persisted until late February or early March. Ives also added that AirPods production would need to "ramp up significantly" to stay on pace with Wedbush's estimates of shipping between 85 million and 90 million units in the 202 calendar year.

"Let's not sugarcoat it: if true (still not confirmed), this production news out of China over the weekend will be a shock to the system and disrupt the supply chain further for Apple on both its core iPhone franchise and AirPods unit production, which is already facing a shortage heading into this week," the Ives and Backe wrote in the note.

Apple is especially vulnerable

More broadly, if Canalys' predictions hold true about smartphone shipments in China being cut in half due to coronavirus-related closures, that could be particularly impactful for Apple given that the Greater China region is its third-largest market.

"The first quarter is usually a slow time for the Chinese market, but the current situation will likely lead to some of the worst ever shipment numbers," Canalys wrote in its report.

These coronavirus-related setbacks also come as Apple's iPhone business and its sales performance in China have rebounded after a tough 2019. Apple's iPhone revenue for its first fiscal quarter of 2020 surpassed analyst expectations to hit $55.96 billion, marking year-over-year growth driven by strong demand for the iPhone 11 and iPhone 11 Pro. Apple last year slashed its guidance for the holiday quarter because of lower-than-expected iPhone upgrades and economic weakness in China among other factors.

It's not yet clear how impactful the coronavirus-related closures will be on Apple's business. But predictions about smartphone shipments being cut in half in China as well as the uncertainty around when full production will resume are likely to result in some shortages. Tom Forte, a senior research analyst for D.A. Davidson, previously told Business Insider that the situation could result in lower than expected revenue for the second fiscal quarter if the closures persist through the end of the month.

"If this remains an issue through the month's end or even worse into March itself, it has the potential to be even more disruptive than the original outlook suggested," he said.