Apple cuts outlook as China slowdown hits iphone sales
SAN FRANCISCO: Apple Inc. cut its revenue outlook for the first time in almost two decades citing weaker demand in China, triggering a slump for Asian suppliers and a wave of lower price targets on Wall Street.
Chief executive officer (CEO) Tim Cook said sales will be about $84 billion in the quarter ended December 29, down from estimates of $89 billion to $93 billion. Apple posted sales of $88.3 billion in the fiscal first quarter a year ago, so the forecast would mean it’s reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011.
Apple shares fell as much as 9% during pre-market trading in New York on Thursday.
The announcement, made in a letter from Cook to investors, comes after weeks of signals from inside Apple and its supply chain indicatingthecupertino,california-based company is struggling to sell the latest iphones released in September. The flagship product earns Apple about two-thirds of its revenue, and allows the company to generate more money from attached products like Apple Watches, Airpods, and services like Apple Music.
While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook wrote. Greater China, a region that includes the mainland, Hong Kong and Taiwan, accounted for most of the revenue shortfall, but iphone upgrades also weren’t as strong as the company anticipated in some developed markets, he said.
“The fact that they missed that wasn’t the shock,” said Daniel Ives, an analyst at Wedbush Securities. “It was the degree and how confined it was to China. The fact that China basically fell off a cliff was a jaw dropper, and combined with the lack of metrics, it makes
As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores in China declining
TIM COOK, CEO, Apple Inc.
investors feel like they’re walking blindfolded in the dark.”
Suppliers in Europe and Asia slumped on the news. AMS AG, which produces optical sensors for mobile phones, fell as much as 19.4% in Zurich, and Dialog Semiconductor Plc, which makes power-management components, fell as much as 8.5% in Frankfurt.
SK Hynix Inc., a producer of memory for Apple, dropped 4.8% in Seoul while Samsung Electronics Co., which makes chips and displays, fell 3%. iphone assembler Hon Hai Precision Industry Co. lost 1.7% and rival Pegatron Corp. slipped 1.2%. Taiwan Semiconductor Manufacturing Co. fell 1.8%.
Several key Apple suppliers overseas had cut their revenue estimates during the past few months, suggesting something was amiss. In November, the firm said it would stop reporting unit sales of iphones, ipads and Macs beginning in fiscal 2019. That sparked concern Apple wanted to avoid disclosing weak growth numbers. Apple’s stock had fallen 32% from an October peak to its close of $157.92 on Wednesday. In December, Bloomberg News reported the company was facing a “fire drill” to boost iphone sales. That led Apple to aggressively market the iphone XR on its website for $449, about $300 less than its official sticker price. The deal required customers to trade in an iphone 7 Plus.
In his letter, Cook said the new iphone models were released earlier than the flagship iphone X last year, which created a difficult year-over-year comparison. The iphone X launched in November 2017, while the iphone XS and XS Max were released in September. He also noted supply constraints to new models of the Apple Watch, ipad Pro and Airpods.
“Iphone upgrades also were not as strong as we thought they would be,” he said, meaning the sales of new models to current customers replacing their old phones. He attributed much of the firm’s “shortfall” in its outlook to struggles in China that he pinned on the economy and “rising trade tensions”. “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,” he said.