Many big companies say they've already taken a big hit in 2020 from the coronavirus with a "major decrease" in demand from China cited by 40% of chief financial officers responding to a flash survey of the CNBC Global CFO Council.
A majority of chief financial officers on the Global CFO Council say the coronavirus known as COVID-19 has created either a supply or demand effect on their business, but it is the demand drop from China that is the biggest impact. In all, 62.5% say they have seen a decrease in Chinese demand — 21.9% of companies surveyed described a "slight decrease" in demand.
Just under 22% of companies have seen a supply impact, but it could get worse: 37.5% of CFOs surveyed indicated it is still too soon to know.
Ninety percent of CFOs taking the survey say their firms have a business relationship with China, but the largest group (62.5%) say they sell products and services into the market. Roughly 40% purchase parts or materials from Chinese companies; roughly one-third of companies manufacture products in China.
The CNBC Global CFO Council represents some of the largest public and private companies in the world, collectively managing more than $5 trillion in market value across a wide variety of sectors. Among these firms, 34% said they have significant headcount in China.
The flash survey was conducted this week and received responses from 32 members of the Council — 18 from North America, 5 from Europe and 9 from Asia.
All the companies say they have made some changes to their businesses in response to concern about the virus, often in relation to employee issues:
- 90.6% have restricted employee travel
- 62.5% say they have allocated more resources to virtual work
- 75% say they are instructing employees about health and hygiene
Some of the largest companies in the world have already warned Wall Street and investors about a negative business impact for both supply and demand reasons.
On Wednesday Microsoft said its personal computing segment earnings would fall short of guidance due to COVID-19. "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," the company stated.
Apple warned in mid-February that iPhone supply issues and a slowdown in Chinese demand would hits its next results.
China is the largest consumer market in the world, next to the U.S.
Chinese supply chains and stories are starting to reopen. Apple said this week that stores in China are reopening (Starbucks said the same). But COVID-19 is spreading around the rest of the world. New cases outside of China recently exceeded those in China for the first time. California Gov. Gavin Newsom said Thursday that 33 people have tested positive for COVID-19 and the state is currently monitoring at least 8,400 others.
The Dow Jones Industrial Average fell by 1,100 points on Thursday (it is down more than 3,000 points this week) and, along with the S&P 500 and Nasdaq Composite, has entered into the fastest market correction in history. It has been the worst weekly decline for the Dow since the 2008 financial crisis. Worries over how the coronavirus will impact corporate profits and global economic growth roiled the U.S. stock market all week as the number of confirmed cases increases.
"U.S. companies will generate no earnings growth in 2020," David Kostin, Goldman Sachs' chief U.S. equity strategist, said in a note on Thursday. "Our reduced profit forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for U.S. exporters, disruption to the supply chain for many U.S. firms, a slowdown in US economic activity, and elevated business uncertainty."
One CFO who responded to the survey said, "We will be adjusting our 2020 revenue and earnings guidance for the impact of the coronavirus."
