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Microsoft Shares Fall As Company Warns Of Q3 Earnings Miss Due To Coronavirus Impact

Neer Varshney

Microsoft Corporation (NASDAQ: MSFT) shares fell in the after-hours session on Wednesday as the technology giant said it doesn't expect to meet the third-quarter earnings guidance it issued last month.

What Happened

The Redmond-based company said that the continued spread of the coronavirus (COVID-19), especially in China, has affected the sales in its "More Personal Computing" segment, with Windows operating system and Surface laptops.

Other businesses, including its rising cloud computing segment, are performing as expected.

"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," Microsoft said in a statement.

"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."

Microsoft expected revenue of between $10.75 and $11.15 from the segment, it said when it released its earnings report for the second quarter of the year.

Why It Matters

Consumer electronics maker Apple Inc. (NASDAQ: AAPL) also downgraded its guidance for the second quarter of its financial year as both the supply-chain and the demand for its products was impacted by the coronavirus outbreak.

Automaker Tesla Inc. (NASDAQ: TSLA), which recently started production at its Shanghai gigafactory, also acknowledged the impact of the COVID-19 on its revenue in a regulatory filing with the Securities and Exchange Commission.

Microsoft doesn't have as many customers in China as Apple or Tesla. Earlier in January, the company's president Brad Smith said it only gets about 1.8% of its revenue from the world's second-largest economy, as reported by Bloomberg at the time. Like most technology companies making hardware, it relies on China mainly for the manufacturing supply chain.

Price Action

Microsoft shares dropped nearly 2% in the after-hours session on Wednesday at $166.80. The stock had closed the regular session 1.25% higher at $170.17.

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