Apple cuts sales forecast as China sales weaken, iPhone pricing in focus
00:19, Jan 5, 2019
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"On this news, Apple's stock fell $11.97 per share, or over 7.5 percent, during aftermarket trading hours on January 2, 2019, damaging investors", said Bernstein Liebhard LLP, a law firm headquartered in NY. But Cook acknowledges that Apple is also taking steps to improve its results.
Apple claimed a number of reasons why it knew revenue would underperform, citing a slowing economy in China, supply constraints, the build of buyers having upgraded to the iPhone X in January 2018 rather than December 2017 and more, but they were themselves surprised by how rapidly the smartphone market in China collapsed, saying "market data has shown that the contraction in Greater China's smartphone market has been particularly sharp". In November, the company said it would stop reporting unit sales of iPhones, iPads and Macs beginning in fiscal 2019. Their collective stumble helped drag down United States stock markets, which had been driven to new highs by their rise. Trade tensions between the two have dragged on for almost a year and uncertainty over their outcome has dragged down stock indexes around the world. Some analysts said investors were acting as if a recession was on the horizon, despite a lack of evidence that the USA economy is struggling. "We knew this would create a hard compare for Q1'19", he writes.
Twitter has met Apple's troubles with derision, with many pointing out that new models are massively overpriced while hardly being technological breakthroughs. "iPhone, in particular, was very strong double-digit growth there". 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.
Apple isn't the only company facing difficulties in a slowing Chinese economy and escalating trade tensions.
The average monthly white-collar salary in China was 7,850 yuan in the third quarter of 2018, meaning that most new iPhones cost more than a month of work, according to a research report from Zhaopin Limited, a Chinese recruiting and job placement company.
"That is having an impact on earnings and it's not going to be just Apple", White House Chairman of the Council of Economic Advisers Kevin Hassett said in an interview with CNN. "There are a heck of a lot of USA companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China". Plus, he doesn't think the Apple decline is a push back to trade tensions. Apple estimated that it would make $91 billion over the last quarter, but has since revised this to $84 billion in revenue, with a gross margin of 38 percent.
While iPhone revenue accounted for the forecast cut, Apple's other product categories, including the iPad and services, grew a combined 19 percent year-over-year, he said. Apple is appealing the decision.
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