Apple Blames IPhone Revenue, China Business As It Cuts Sales Outlook

The new year is only 2 days old. But for Apple, it’s possible that 2019 could end up being one of its longest years in recent history, with ominous portents for the rest of the tech industry.

On Wednesday, the Cupertino tech titan cut its revenue forecast for its just-completed fiscal first quarter. It was a nearly unheard-of move for a company whose profits in recent years have been the envy of the world.

In a letter to shareholders posted on the company’s investor relations site, Apple CEO Tim Cook said the company expects sales for the quarter that ended Dec. 29 to come in at $84 billion, compared to an earlier outlook for sales in a range of $89 billion to $93 billion — and he pointed to the uncertain Chinese market as the culprit.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China,” Cook said in a letter to investors. “We believe the economic environment in China has been further impacted by rising trade tensions with the United States.”

Apple’s surprise announcement is almost certain to reverberate in the broader tech industry, adding to concerns about the ability of American companies to navigate an increasingly uncertain economy amid the Trump administration’s aggressive stance on trade with China and other nations.

For Apple, the impact of the trade war quickly became palpable: Not only will the company’s sales end up being below its prior outlook, its revenue also is expected to fall almost 5 percent from the $88.3 billion it reported in last year’s fiscal first quarter.

“Lower than anticipated iPhone revenue, primarily in greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline,” Cook said in his shareholder letter.

The new forecast was all Wall Street needed to turn on Apple, as investors drove the company’s shares down by more than 7 percent, to $146.10, in after-hours trading. Along with Wednesday’s after-market losses, Apple shares have fallen by more than 15 percent over the past year.

Tim Bajarin, president of tech consultancy Creative Strategies, said that what Apple is seeing is a reflection of the state of the world economy and a maturing market for what has for years been a hot consumer product.

“China’s worsening economy was bound to impact Apple and most of the smartphone companies as demand for smartphones (was) down across the board,” he said. “Smartphone demand around the world has reached a peak, and it will be harder and harder for all smartphone companies to adjust to this new normal and create products that will still gain serious consumer demand.”

Apple has a history of giving quarterly revenue outlooks that are slightly less than analysts’ forecasts, then exceeding those estimates with its quarterly results.

But cutting a sales outlook for a business period that has just ended, and ahead of its upcoming quarterly results, is something completely foreign to Apple since before the iPod took off and set Apple on the path to where, in August, it became the first American company to reach a market valuation of $1 trillion.

“This will be the most defining moment in Cook’s career,” said Dan Ives, director of technology research at Wedbush Securities. “This was a major black eye for Apple as the China growth story crumbled this quarter, and it seems Cook and company were caught flat-footed.”

Comments from Cook were likely to add to speculation that Apple’s latest batch of new iPhones — the iPhone XS, iPhone XS Max and iPhone XR — are meeting with less-than-spectacular sales. The iPhone XS Max, for instance, starts at $1,099, while the iPhone XS has an initial price tag of $999. The iPhone XR starts out as a relatively inexpensive $749.

“In some developed markets, iPhone upgrades also were not as strong as we thought they would be,” Cook said.

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In November, Apple made investors nervous about iPhone sales, in particular, when the company said that it would no longer give quarterly unit-sales figures for iPhones, as well as iPads and Mac computers.

As part of an effort to spur iPhone sales, the company is currently running a promotion where iPhone owners can trade in their current phones and get an iPhone XR starting at $449, or an iPhone XS from $699.

The New York Times contributed to this story.

Source : https://www.mercurynews.com/2019/01/02/apple-blames-iphone-revenue-china-business-as-it-cuts-sales-outlook/

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