Amphenol Cuts Guidance a Week After Apple Warned of China Virus Woes -- Barrons.com
By Eric J. Savitz
In the latest signs of trouble in the tech supply chain, the electrical connector manufacturer Amphenol on Monday warned that it won't meet its original guidance for 2020 sales and adjusted earnings per share for the March quarter due to the impact of the Covid-19 virus outbreak in China. The company said that the uncertainty around when it can return to full production in China and a lack of visibility on demand from China customers make it impossible quantify the specific impact on its business.
Amphenol's (ticker: APH) announcement echoes the cautions comments last week from its client Apple (AAPL), which a week ago warned that a combination of supply chain and demand issues tied to the virus would make it impossible to hit previous guidance.
"We are experiencing a slower return to normal business conditions than we originally anticipated, resulting from the limited availability of our workforce and supplier constraints, together with reduced demand from customers within China who have not yet returned to expected production levels," Amphenol CEO R. Adam Norwitt said in a statement. "As of today, all of our China operations have reopened and more than 60% of our China-based employees have returned to work, despite ongoing significant restrictions on movement within China. Outside of China, customer demand remains in line with our expectations. Our company continues to be fundamentally strong, and we believe that this disruption to our China-related business is only temporary."
Citi analyst Jim Suva points out in a research note Monday that Amphenol generated about 30% of revenue from customers in China, and that it gets a "high-single-digit" percentage of revenue from Apple, so the announcement is not that surprising. Suva, who has a Buy rating and $115 target price on Amphenol shares, thinks sales lost in the March quarter are likely to be recouped in subsequent quarters. "We believe that the demand issue is transitory in nature and that Amphenol should be able to ramp up capacity quickly" as workers return to the company's factories in China.
There should be more commentary on supply chain issues later Monday, when HP (HPQ) reports January quarter financial results, with further data points on Thursday when Dell Technologies (DELL) reports January quarter results.
Adding to the investor jitters on the tech supply chain, Samsung temporarily shut down production at one of its factories on Sunday after one of its workers was diagnosed with the virus.
Amphenol shares on Monday are down 4.1%, to $97.59.