Microsoft Warns Coronavirus Will Hit PC Earnings, Surface Sales


Microsoft has warned investors that the coronavirus known as Covid-19 will have a significant impact on its third quarter. Microsoft’s fiscal year doesn’t follow the calendar, so the period from January – March is technically Q3 for the company, not Q1.

Previously, Microsoft had forecast earnings of $10.75 – $11.15B in the “More Personal Computing” segment, which includes both its Windows licensing business and its Surface hardware. Microsoft is uniquely exposed in this situation, given that it both sells the OS licenses that ship on the overwhelming majority of PCs and also sells its own line of Surface hardware, which is built in China and was likely affected by the Covid-19 breakout.

The company writes:

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 Q2 earnings call. 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 are more negatively impacted than previously anticipated. All other components of our Q3 guidance remain unchanged.

Investors and epidemiologists are both concerned about the potential impacts of the coronavirus. Based on China’s official reports, it looks as though the illness is slowing down in that country, with more reports of new coronavirus infections outside of China than inside of it. Right now, we’re all collectively waiting to find out if the virus will be effectively contained or if it’ll go truly global. Organizations like the CDC and FDA have tried to emphasize the seriousness of containing the infection without causing a panic. While coronavirus’ 2 percent fatality rate doesn’t sound high, the estimated fatality rate for the flu is 0.45 percent. The GIF below, courtesy of Wikipedia, shows the outbreak’s spread across the globe through 2/25/2020.

Image by Wikipedia

This article by James Hamblin at The Atlantic explains that the reason epidemiologists are so concerned about coronavirus isn’t because it kills people, but because it doesn’t kill people all that effectively. It’s precisely this kind of pathogen that’s most likely to become a long-term global problem. Influenza drives a fair amount of yearly health care spending and has a measurable impact on the global economy. If coronavirus becomes similarly established, we can all look forward to a new disease that could show up on a yearly basis. Diseases that kill their hosts too quickly don’t tend to spread very well. Coronavirus has a very long incubation period and the vast majority of people who get it recover normally. That actually makes it more dangerous, from a long-term public health perspective, rather than less.

If China’s production starts picking up again, PC shipments should recover by the end of the year. The bigger question would seem to be the impact coronavirus has on everywhere else, and what measures countries are willing to take to prevent it spreading. By this time next year it could be a half-forgotten story — or still a major topic of discussion. Right now, it’s not clear which of those outcomes to expect.

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