Published: Thu, January 03, 2019
Business | By Eloise Houston

Apple cites China as it cuts forecast

Apple cites China as it cuts forecast

The announcement came after the United States market closed and Apple's shares are trading about 8 percent lower in the after-market.

While we are disappointed to be falling short of our quarterly revenue goal, our fiscal first quarter was also a record setter for revenue from Services, Wearables and the Mac. iPad revenue grew double-digits over the year-ago quarter, and iPhone activations in the USA and Canada set new Christmas Day records.

In November, the Cupertino, California-based company said it would stop disclosing unit sales data for iPhones and other hardware items, leading many analysts to worry that a drop in iPhone sales was coming.

On Apple's earnings call in November, Cook cited slowing growth in emerging markets such as Brazil, India and Russian Federation for the lower-than-anticipated sales estimates for the company's fiscal first quarter.

Apple on Wednesday lowered its first-quarter revenue outlook, following weaker than expected iPhone sales and a slowing economy in China. Greater China and other emerging markets accounted for the vast majority of year-over-year iPhone revenue decline, but iPhone upgrades also weren't as strong as the company anticipated in some developed markets, Cook said. In August it became the first publicly traded company to be valued at $1tn. Stocks fell 7.5 percent after hours trading continued.

Apple has been seeking to diversify its revenue stream in the face of a largely saturated global smartphone market, with new products and services. After Apple took such drastic measures as to put new iPhone models on sale leading up to the holidays, it was clear that the company was staring down the dark throat of decline.

In the shareholder letter Apple describes how they "did not foresee the magnitude of the economic deceleration, particularly in Greater China". Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter.

In a memo obtained by Bloomberg News, Cook expressed his disappointment after Apple cut its revenue outlook for the first time in nearly two decades.

Recent production cuts by major suppliers have led to worries that the firm's newest phones were not gaining traction among buyers, in part due to high prices. "... When we discussed our Q1 guidance with you about 60 days ago, we knew the first quarter would be impacted by both macroeconomic and Apple-specific factors". China generated 18% of the company's sales in its September quarter.

Is Apple downplaying the other factors?

Those reasons don't fully explain iPhones' declining market share in China, especially in a quarter when it released new models, which used to be welcomed by Chinese consumers with much fanfare.

"This is Apple's darkest day during the Cook era", Wedbush Securities analyst Daniel Ives said. Cook's letter noted that services revenue was $10.8 billion in the quarter and the business should double from 2016 to 2020.

After the iPhone throttling scandal previous year, when Apple admitted to slow down some models to compensate for battery performance degradation, the company has lowered the price of battery replacements from $79 to $29, as a way of apologizing.

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