When Apple issues a profit warning, you know something’s up.
The tech company did just that on Wednesday, January 2, with CEO Tim Cook citing a slew of factors weighing heavily on its business during the holiday quarter and heading into 2019.
The bottom line is that Apple is currently selling fewer phones than it expected, prompting the company to revise its sales forecast downward for the final three months of 2018.
In a letter to investors that spooked the market and wiped $55 billion off the market capitalization of the tech colossus, Cook suggested the company may have missed as much as $9 billion in sales for the quarter. This, he said, was the result of pressure on the global economy and Apple’s failure to “foresee the magnitude of the economic deceleration, particularly in Greater China. ”
The CEO said, “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac, and iPad.”
It was Cook’s view that “the economic environment in China has been further impacted by rising trade tensions with the United States,” a reference to the ongoing trade war between the U.S. and China.
He continued: “As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed,” adding that market data revealed the contraction in China’s smartphone market has been “particularly sharp.”
Weaker-than-expected demand for iPhone upgrades
Weaker-than-expected demand for iPhone upgrades in developing markets was also cited as a factor, as was a strong U.S. dollar and an earlier launch of the iPhone XS and XS Max compared to the iPhone X. Cook’s letter also pointed to “customers taking advantage of significantly reduced pricing for iPhone battery replacements,” a service that Apple launched in 2018 but which ended on December 31.
Interestingly, in his letter Cook declined to mention the rise of Chinese rivals as a reason for the squeeze on iPhone sales. Huawei, for example, sold 200 million phones (includes sister brand Honor) in 2018, making it the world’s second biggest smartphone manufacturer after Samsung. Apple sits in the third spot.
Cook: Apple has a “bright future” in China
Keen not to leave investors feeling too gloomy, the CEO said that despite the current difficulties, Apple’s business in China “has a bright future,” insisting that the company’s products “enjoy a strong following among customers, with a very high level of engagement and satisfaction.”
Apple’s profit warning is the first from the company in 16 years, and its first since the launch of the iPhone in 2007. But with sales of $84 billion still expected — revised downward from between $89 billion and $94 billion — few will view the current situation as a crisis for the tech firm.
In any case, its current struggles reflect the growing challenge faced by smartphone makers around the world after reports toward the end of 2018 highlighted a 6 percent drop in handset sales globally, with China again cited as one of the primary factors in the fall.
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