Apple drops revenue guidance after slowing sales in China

Ann Santiago
January 11, 2019

In a letter to employees, published Wednesday, January 2, Apple CEO Tim Cook directly referenced the economic slowdown in Greater China as a cause for these lower revenue projections.

Apple is cutting billions from its revenue estimates for the just-ended holiday season, citing sharply slower iPhone sales in China.

On the other hand, Cook also stressed that Apple showed considerable strengths in other areas (particularly in its cash assets: the company is now sitting on about $130 billion). "First, the different timing of its iPhone launches, which would affect its on-year compares".

The company this week issued a dire warning to investors about its business, announcing that it would miss its sales target for the last quarter of 2018 by at least $5 billion.

Wall Street is still reeling after Apple's disappointing first quarter (Q1) expectations.

"Second, the strong United States dollar would create foreign exchange headwinds and Apple forecasted this would reduce its revenue growth by about 200 basis points as compared to the previous year". Apple tends to set its prices in US dollars and charge a broadly equivalent amount in local currencies. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. The AirPods and the MacBook Air were also constrained.

"Our non-iPhone businesses have less exposure to emerging markets", he wrote.

In addition to the reduction in Apple device sales, there are global issues like Brexit and the potential US-China trade war also unsettling shareholders.

Like at other consumer goods companies, the festive season is typically Apple's strongest quarter, but revenues of $84 billion would mark an nearly five percent fall from the same period last year and represent the firm's first year-on-year quarterly decline since 2016.

Cook placed the blame on "both macroeconomic and Apple-specific factors", and said that the iPhone maker failed to "foresee the magnitude of the economic deceleration" in emerging markets.

Apple has held firm on its premium pricing strategy in China despite the risk of a slower economy, a factor that has been exacerbated by the strong US dollar. The stock's decline in the fall was fueled by concerns over slowing iPhone sales after Apple reported results for the September quarter, as well as a broader sell-off by tech investors.

Cook acknowledged that the revenue shortfall in its guidance was partly due to China's trade tensions with the US.

Speaking of the rest of Apple, Cook did state other areas of the company are gearing up to see record profits, with some reaching near a 19 percent increase year-over-year. "Bernstein Liebhard wrote in their press release: "[On] November 1, 2018 during Apple's fourth quarter 2018 conference call, CEO Tim Cook stated that '[o] ur business in China was very strong last quarter.

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