What’s Going On Here?A problem was detected and, in a statement late on Wednesday, Microsoft reduced its profit outlook to prevent long-term damage to its business. If this message appears again, please reboot your global tech giant. What Does This Mean?Microsoft, the biggest US company by market value, told investors it no longer expects its personal computing division to meet its sales targets. The virus has, after all, forced factories all over China into shutdown, disrupting the company’s manufacturing. And that’s a big issue: Microsoft’s personal computing business – which sells products like Windows, Surface laptops, and Xbox consoles – makes up more than a third of the company’s overall sales.
US tech companies rely heavily on China to produce their goods, so it’s no surprise to see supply chain disruptions knock Microsoft off balance. They’ve done the same to Apple and HP, which have slashed their own estimates too. It could be worse, mind you: Microsoft doesn’t think the virus will harm its fast-growing cloud computing business. Not yet, anyway. Why Should I Care?For markets: All for one, one for fall.
Microsoft’s shares fell on Thursday, and so did those of chipmakers Intel and AMD, two of its major suppliers. Then again, Thursday was the fourth consecutive day of virus-related declines for the whole of the US stock market. And as if to mark the occasion, new data arrived to show US factory orders for big-ticket items (think cars and appliances) falling in January – even before the worst of the virus had emerged.
The bigger picture: Nervous Nellies.
On Thursday, Goldman Sachs and Citi warned investors that the current sell-off will get worse before it gets better. They reckon there’s a lack of clarity into when the epidemic will be resolved and, more importantly, how the US Federal Reserve will respond (tweet this). The central bank has so far kept zipped about any potential future interest rate cuts, and that’s not doing much to put edgy investors at ease. | 