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Fears that coronavirus will hurt tech companies' business are already becoming a reality.
Microsoft became the second U.S. tech giant to warn investors that the impact of the flulike virus on its suppliers in China would dampen this quarter's sales. The company said yesterday sales for its personal-computing business are expected to fall below its previous forecast because “the supply chain is returning to normal operations at a slower pace than anticipated.”
Products affected include Windows, Surface tablets and Xbox, though the company said its rapidly growing cloud business would not be impacted. Microsoft's warning follows Apple's decision to slash its own sales guidance last week in response to the outbreak.
During a shareholder meeting, Apple chief executive Tim Cook warned yesterday that coronavirus is “a challenge for the firm” and described it as a “fairly dynamic situation.”
The warnings emanating from two of the world's most valuable companies could be a harbinger of troubles to come as Wall Street tries to quantify the financial damage the coronavirus could pose. Many other U.S. consumer electronics makers have factories in China, and more companies may feel pressure to make similar disclosures soon.
Dan Ives, a managing director at Wedbush Securities said that Microsoft's announcement could escalate broader market fears, the New York Times's Karen Weise writes.
“When bellwethers like Microsoft come out and talk about the supply chain and how it will negatively impact PC demand, it fans the flames of some of the worries out there for the broader supply chain,” he told the Times.
The warnings coming from the companies stand in stark contrast to the optimistic tone of President Trump during a news conference yesterday, my colleagues Toluse Olorunnipa, Josh Dawsey and Yasmeen Abutaleb reported.
“We’ve had tremendous success, tremendous success beyond what many people would’ve thought,” Trump said at the White House following days of tumbling stocks. “We’re very, very ready for this.”
There are signs coronavirus could have a wide-ranging impact across the industry. Thousands of Amazon sellers who rely on China's cheap manufacturers could experience disruptions, the Wall Street Journal's Jon Emont writes. They're raising prices to slow sales and attempting to shift production to other countries. Experts told the Journal that these smaller players could be even more impacted by the tech giants because even when the factories do resume production, they will be low on the list for merchandise.
“I don’t think the Amazon platform has seen such a massive amount of inventory problems as we are about to see,” said Patrick Maioho, a Michigan seller of kitchen products who also advises others on Chinese manufacturing, told the Journal.
The third-party marketplace accounts for half of Amazon's sales. The company told the Journal that it was working with sellers to secure additional inventory and provided guidance on protecting their accounts on the platform. Some sellers worry shortages or disruptions could cause Amazon's algorithms to lower their rankings, and that they might not be able to regain their positions even after manufacturing resumes.
A recent report from financial services company D.A. Davidson also identified several smaller companies who could experience supply chain issues because of the outbreak. Logitech, the maker of computer accessories such as keyboards, could be exposed, the note warned, because many of its products are sourced in China. The company did not address the outbreak when reporting earnings last month.
E-commerce players including Shopify and Wayfair also source more than 25 percent of their products via China, the note estimated. Shopify said in an earnings call earlier this month that it was monitoring the situation and had not yet observed a material impact on its business. Wayfair is expected to report its earnings tomorrow.
BITS, NIBBLES AND BYTES
BITS: A U.S. Justice Department official said in a letter this week that Google had engaged in “unacceptable” delays in turning over a tranche of evidence for an antitrust investigation, my colleague Tony Romm reports. The rare rebuke of the company hinted that legal action could be next if Google fails to comply.
The Justice Department could issue a civil-investigative demand, asking a court to force Google to turn over the relevant records in the document request. The agency is seeking details involving key executives, that pull back the curtain on the company’s business practices. The records requested suggest the probe that could ultimately include the tech giant’s dominant search engine, its lucrative advertising empire and its Android smartphone operating system. The Justice Department declined to comment.
Julie Tarallo McAlister, a spokeswoman for Google, told Tony that the company had already provided millions of pages of documents in response to the DOJ’s earlier requests. “We have a long track record of cooperating with regulators and will continue working to show how our products create choice, and help millions of consumers and businesses across the country,” she said in a statement.
NIBBLES: U.S. Immigration and Customs Enforcement officials ran facial-recognition scans on millions of Maryland driver’s license records without first seeking state or court approval, my colleagues Drew Harwell and Erin Cox report. The agency’s unfettered access to the photos has concerned immigration and privacy activists, who worry it’s being used to target immigrants who obtained licenses after 2013.
Maryland has issued more than 275,000 such licenses to undocumented immigrants since 2013, when it became the first state on the East Coast to allow immigrants to obtain a license without providing proof of legal status. With this system, an ICE official could run a photograph of an individual through the system and see whether it returned any potentially undocumented immigrants as a match.
“It’s a betrayal of immigrants’ trust for the [state] to turn around and let ICE run warrantless searches on their faces,” Harrison Rudolph, a senior associate at Georgetown University Law School’s Center on Privacy & Technology, told my colleagues. “It’s a bait-and-switch. … ICE is using biometric information in the shadows, without government notice or public approval, to hunt down the most vulnerable people.”
ICE officials recorded nearly 100 sessions in the state’s driver’s license database since 2018, according to a letter obtained by Drew and Erin. Each session may have included several searches of the Maryland Image Repository System database, which stores the photos, names, addresses and other personal information of about 7 million drivers.
BYTES: A California federal appeals court ruled yesterday that Internet companies are free to remove content they don't like, the Wall Street Journal's Jacob Gershman reports. It's the strongest rejection to date of a popular argument among some conservatives that Facebook, YouTube and Twitter need to be more hands-off with content under the First Amendment.
Prager University, a nonprofit founded by talk-radio host Dennis Prager that makes videos propagating conservative ideas, sued YouTube and its parent company Google after it marked dozens of its videos as “inappropriate,” blocking advertising from the clips and restricting their visibility among students, library users and children. PragerU argued that it was suffering viewpoint discrimination under the First Amendment and that the videos were not offensive. The titles of the flagged videos included “Why Isn’t Communism as Hated as Nazism?,” “Why Did America Fight the Korean War?” and “Are 1 in 5 Women Raped at College?”
The nonprofit argued YouTube had molded itself into a public square — and as such, there should be more legal scrutiny of its content moderation decisions.
“Obviously, we are disappointed,” PragerU attorney Peter Obstler told the Journal. “We will continue to pursue PragerU’s claims of overt discrimination on YouTube in the state court case under California’s heightened antidiscrimination, free-speech and consumer-contract law.”
Google argued that allowing PragerU to move forward with the constitutional claim would have “disastrous consequences” for the First Amendment — and the Internet more broadly.
—News from the private sector:
— News from the public sector:
— Tech news generating buzz around the Web:
– Jason Droege, the head of Uber's food-delivery business, is leaving the company. He will be succeeded at Uber Eats by the head of its international rides business, Pierre-Dimitri Gore-Coty, the Wall Street Journal's Sarah E. Needleman reports.
- The University of Chicago Harris School of Public Policy will host an event titled "Politics and Privacy in a Digital World" at the National Press Club from 5:30pm-8:30pm today.
— Coming up:
- Nava Public Benefit Corporation will host a conversation moderated by the Technology 202's Cat Zakrzewsk on "Impact at Scale: From Big Tech to Civic Tech" at 6pm on March 10.
- SXSW will take place in Austin March 13-22.
- The Game Developers Conference will take place in San Francisco March 16-20.