Has Apple finally fallen?

Tech giant is under pressure in China — and though the iphone still produces two-thirds of its revenue, its rivals are closing in

After a charmed run of more than two decades, gravity has finally caught up with Apple’s share price. The company grew steadily since Steve Jobs retook control in 1997, and became not only the world’s most valuable listed company but the first to hit the $1-trillion mark.

Until last week. In a letter to investors, CEO Tim Cook said Apple was expecting a $9bn revenue shortfall for the first quarter of its 2019 fiscal year, which ended on December 29. Even though it’s expecting about $84bn in revenue, with a gross margin of about 38%, that’s less than the previously announced $89bn-$93bn.

The market wiped 7.5%, or $55bn, off Apple’s share price on the day alone.

“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.

Though this is Apple’s first profit warning since 2002, the market has been fearing such an event. It led to a sell-off in emerging-market currencies and affected global tech stocks.

Apple is still hugely profitable, with a cash stockpile of $237bn. But there is no pleasing Wall Street.

Cook blamed the slowdown in China’s economy — “GDP growth during the September quarter was the second-lowest in the last 25 years” — which was “further impacted by rising trade tensions with the US”.

He also said “market data has shown that the contraction in greater China’s smartphone market has been particularly sharp”.

Apple has sold more than a billion iphones since 2007 and they account for two-thirds of revenue — but investors are worried about overreliance on the handsets. The smartphone markets in Apple’s key developed countries are saturated, even if iphone activations in the US and Canada set new Christmas records.

Apple clearly has a China problem. Cook said lower-than-expected iphone revenue, primarily in greater China, “accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline”.

Apple also has an iphone problem — and its competitors are getting better and better. And cheaper. The new iphone Xs, Xs Max and XR ranges are very expensive; similar models in China are up to half the price in yuan.

There’s more bad news: though “services generated over $10.8bn in revenue during the quarter” for Apple, Netflix says it will no longer take payments through itunes, on which Apple charges a 30% fee. That’s an estimated $256m that Netflix paid over last year, according to Techcrunch, that Apple might now lose out on.

But as Cook told investors: “We are confident and excited about our pipeline of future products and services. Apple innovates like no other company on earth, and we are not taking our foot off the gas.”

It already looks as if 2019 is going to be a wild ride.

The smartphone markets in Apple’s key developed countries are saturated