Apple Cuts Guidance For Quarter, Citing Low iPhone Upgrades

Tim Cook

CREDIT ANDREW GOMBERT EPA-EFE REX Shutterstock

The iPhone maker said on Wednesday it was drastically lowering first quarter revenue estimates, primarily hit by a demand slowdown in China.

The company forecast $84 billion in revenue for its fiscal first quarter ended December 29, which is below analysts' estimate of $91.5 billion, according to IBES data from Refinitiv.

In the letter, published by the company after the NY close on Wednesday, Cook wrote that a number of factors contributed: timing of iPhone launches, foreign exchange headwinds, economic weaknesses and an "unprecedented number of new products to ramp", culminating in "fewer iPhone upgrades than we had anticipated". Cook said that most of the revenue shortfall to the company's initial guidance "occurred in greater China across iPhone, Mac and iPad".

Cook goes on to add that the rising tension between the United States and China played a part in the declining sales, with traffic to Apple stores in the region declining as the quarter progressed.

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Some analysts, however, questioned the impact of Apple's own actions, such as its unyielding pursuit of high selling prices for its products.

Apple shares sank about 9% at the start of trading Thursday, a day after the company issued a rare earnings warning that it chalked up largely to sluggish iPhone sales in China. "The government-reported GDP growth during the September quarter was the second lowest in the last 25 years", wrote Cook.

Later in the missive, however, Steve Jobs former right-hand man would admit that the iPhone has also fallen short of expectations, both in its emerging and established markets around the world.

One of the key elements that Apple blamed for this sudden drop in revenue was the lack of interest in upgraded iPhone models and the Chinese economy.

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Like other luxury brands, Apple's sales are largely tethered to the Chinese economy - which began to slow in the second half of 2018. Apple originally forecast revenue of between $89 billion and $93 billion.

Apple predicts quarterly gross margin of 38% and operating expenses of $8.7 billion.

Despite the revision, Cook also announced the company expects to "set all-time revenue records in several developed countries", including the United States. Apple is also tasked with exploring how to more effectively break into market like India with a low-priced option.

Although Cook pointed fingers at China almost a dozen times in his letter, many analysts believe Apple's underlying issues are far more complex than a slowdown in one market.

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