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Feb 26, 2020

Microsoft warns on revenue due to virus's impact on supply chain

Why Amazon and Microsoft could be the stocks to invest in despite coronavirus selloff

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Microsoft Corp. reduced its sales forecast for the current quarter because of the impact of the coronavirus outbreak on personal-computer suppliers and manufacturers in China, heightening concerns that the U.S. technology industry is facing a serious shock.

In a statement Wednesday, the company said it doesn’t 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 at a slower pace than expected. Last month, Microsoft gave a wider-than-usual sales target -- $10.75 billion to $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 Inc. and PC company HP Inc. in cutting quarterly forecasts because of supply-chain disruptions related to the virus, known as Covid-19. Merchants who sell on Amazon.com Inc. 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.

As component makers and tech-gadget assembly companies in China continue to face production slowdowns due to quarantines and shuttered factories, U.S. technology companies are reported to be scrambling for alternatives. Microsoft and Alphabet Inc.’s Google are looking at manufacturing facilities in Vietnam and Thailand, the Nikkei Asian Review reported Wednesday.

Microsoft shares declined about 1.7% 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 had been trading at all-time highs earlier this month. Shares of Intel Corp., the biggest PC-chip maker, and rival Advanced Micro Devices Inc. also fell in extended trading, as did PC makers Dell Technologies Inc. and HP.

Demand for Windows operating-system software is strong and has been in line with the company’s forecasts, Microsoft said in the statement. The rest of the company’s forecast for the current quarter remains unchanged. On average, analysts were predicting total sales of $34.6 billion for the period ending in March, according to estimates gathered by Bloomberg. 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 impacted by lingering shutdowns in China.