What Tim Cook left out about China in Apple's revenue guidance
Jan 04 2019
"This is not a catastrophe nor is it a sign that Apple is losing its grip on the smartphone market but merely a misjudgment by Apple with regard to how much money people will pay for an iPhone". "iPhone, in particular, was very strong double-digit growth there".
But the uptick didn't continue.
The company slashed its revenue guidance for the first fiscal quarter of 2019, ended December 29, to $84 billion - sharply lower than analyst forecasts averaging $91 billion. "Blaming macro weakness and trade concerns is obfuscation".
In a letter to investors on Wednesday, chief executive Tim Cook said the firm's sales problems were primarily in its Greater China region, which includes Hong Kong and Taiwan and accounts for nearly 20 percent of its revenue.
"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", Mr Cook wrote in the letter.
In a carefully crafted letter, CEO Tim Cook said economic turmoil in China wreaked havoc on the company's top line.
Consumers are more likely to curb spending on big-ticket items during economic downturns, and there are worries over "consumption downgrade" in China. In an interview with CNBC, he also blamed lack of subsidies for telecoms and lower battery replacement price disincentivizing upgrades. While we don't have the exact numbers, it's likely that many iPhone customers made a decision to pay the $30 to extend the life of their current handsets rather than shell out hundreds of dollars for a new model. China is also one of Apple's most important markets, once referred to as a "hypermarket" by Cook. China's smartphone market has been down 6% year-over-year in the third quarter of 2018 and is expected to drop by 3% in the fourth quarter of 2018, according to IDC.
AJ Bell investment director Russ Mould said the revenue warning has now "confirmed investors' worst fears" about the firm's future, as Apple is now expected to report its first year-on-year declines in sales and operating profit in two years.
Peak AppleApple shares were temporarily pulled from trading on Wednesday as the Cupertino idiot-tax operation warned of lousy sales numbers on the horizon.
However, the excuses Cook comes up with fails to mention any arrogance or stupidity on Apple's part.
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.
"The question for investors will be the extent to which Apple's aggressive pricing has exacerbated this situation and what this means for the company's longer-term pricing power within its iPhone franchise", said James Cordwell, an analyst at Atlantic Equities.
Cook said the new iPhone models were released earlier than the flagship iPhone X last year, which created a hard year-over-year comparison. The dollar later recovered somewhat to trade 1.1 percent lower on the day at 107.63 yen.