The coronavirus could delay an anticipated bump in Microsoft's Windows revenue, as PC makers delay building new business computers that come with the operating system.
Microsoft, a key driver of the S&P 500, benefited from strong sales of Windows licenses for business PCs, as companies rushed to upgrade their hardware before Microsoft stopped supporting Windows 7 in January.
That trend should continue, but factory work stoppages in China could delay sales into later quarters. For Microsoft, 15% of revenue comes from Windows, and 40% of Windows revenue comes from licenses for commercial devices.
Microsoft issued wider-than-usual first-quarter guidance for the More Personal Computing segment that contains Windows on January 29 to acknowledge dynamics in China, finance chief Amy Hood told analysts on a conference call. Single-digit revenue growth in the More Personal Computing segment should reflect the demand for Windows 10 and the end of support for Windows 7, Hood said.
Apple had also provided wider revenue guidance than usual in January in connection with coronavirus. Then, on February 17, the company said it didn't expect to achieve the guidance. Microsoft declined to comment on whether it would update its guidance before the next time it reports earnings.
"I think what's important is, if you try to take out, which is challenging, some of the comments we've had on either chip supply constraints or some of the uncertainty related to the public health situation in China, you would say what we have in terms of what the cycle would look like compared to prior cycle ends would actually be quite similar," Hood said on Microsoft's earnings call last month.
PC makers have given several recent clues that the cycle might not continue as normal.
First, HP warned that production constraints may push out some business upgrades to the second half of the year.
"Ironically I think the coronavirus may ultimately push out some of the Windows 10 refresh timelines given some of the constraints we're going to see in Q2," HP finance chief Steve Fieler said on a conference call to discuss the company's fiscal first-quarter results on Monday. "So that could support a better second half than we originally anticipated."
HP still expects coronavirus to negatively impact the company's top and bottom lines in the fiscal second quarter, with activity in China affecting both supply and demand, Fieler said.
HP is the second-largest PC maker behind Lenovo, according to Gartner and IDC.
Lenovo CEO Yuanqing Yang said on a conference call on Thursday that most of its factories in China had reopened, but similarly warned that supplies would be constrained this quarter..
"Demand worldwide on PC is still very, very good," Lenovo operating chief Gianfranco Lanci said. "And probably in Q1, the entire market, the entire industry will not have enough supply."
Dell, the third-largest PC vendor, will report earnings on Thursday.
