Ap­ple CEO cites trade con­flict in China sales short­fall

China Daily (USA) - - WORLD US - By WIL­LIAM HENNELLY in New York williame­hen­[email protected]­nadai­lyusa. com

The US-China trade dis­pute is a fac­tor in Ap­ple’s de­clin­ing rev­enue in China, CEO Tim Cook stated in a let­ter to share­hold­ers re­leased on Wed­nes­day.

Ap­ple had pre­vi­ously told in­vestors to ex­pect over­all rev­enue between $89 bil­lion and $93 bil­lion in the fis­cal 2019 first quar­ter. On Wed­nes­day, it re­duced that es­ti­mate by 7.6 per­cent to $84 bil­lion.

“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. “In fact, most of our rev­enue short­fall to our guid­ance, and over 100 per­cent of our year-overyear world­wide rev­enue de­cline, oc­curred in Greater China across iPhone, Mac and iPad.”

“The trade ten­sions between the United States and China put ad­di­tional pres­sure on their (China’s) econ­omy,” Cook said in an in­ter­view on CNBC on Wed­nes­day. “So we saw as the quar­ter went on things like traf­fic in our re­tail stores, traf­fic in our chan­nel part­ner stores, the re­ports of the smart­phone in­dus­try con­tract­ing, par­tic­u­larly bad in Novem­ber. I haven’t seen a De­cem­ber num­ber yet, but I’d bet it would not be good ei­ther.”

“I was in South­east Asia this sum­mer and saw so many phones, not just from Xioami and Huawei, but also brands like OPPO that will prob­a­bly never be sold here in the States,” Jim Collins, found­ing part­ner of in­vest­ment site The Port­fo­lio Guru, told China Daily. “I think the iPhone has too much tech in it to ever hit the price points those do­mes­tic com­peti­tors can.

“To me, that’s the real prob­lem for Ap­ple in China, moreso than the trade war,” Collins said.

Ap­ple also faces chal­lenges from do­mes­tic smart­phone mak­ers in China such as Huawei and Xiaomi, which have grabbed more mar­ket share.

“De­spite these chal­lenges, we be­lieve that our busi­ness in China has a bright fu­ture,” Cook wrote in the let­ter. “The iOS de­vel­oper com­mu­nity in China is among the most in­no­va­tive, cre­ative and vi­brant in the world,” Cook wrote. “Our re­sults in China in­clude a new record for Ser­vices rev­enue, and our in­stalled base of de­vices grew over the last year. We are proud to par­tic­i­pate in the Chi­nese mar­ket­place.”

Ap­ple did top the Chi­nese smart­phone mak­ers in sales on Alibaba’s Sin­gles Day in Novem­ber.

The cut in rev­enue guid­ance sent Ap­ple’s stock down nearly 8 per­cent in af­ter-hours trad­ing on Wed­nes­day. The shares had al­ready de­clined more than 30 per­cent from their high in Oc­to­ber.

An­a­lysts and in­vestors have been in­creas­ingly bear­ish on Ap­ple stock amid its worst slump in more than a decade. Many Ap­ple prod­ucts were ad­ver­tised with dis­counted prices af­ter de­vice trade-ins.

The com­pany also cited the strong US dol­lar and lower bat­teryre­place­ment prices as a drain on sales. Ap­ple, de­spite the chal­lenges in China, ex­pects an all-time high in earn­ings per share when it re­ports on Jan 29.

US Pres­i­dent Don­ald Trump had told The Wall Street Jour­nal in Novem­ber that the iPhone and other Ap­ple prod­ucts could be af­fected by the next round of tar­iffs, which would cover the $255 bil­lion in Chi­nese prod­ucts not cur­rently in­cluded. Ap­ple pre­vi­ously warned that such tar­iffs would harm the com­pany.

The US and China agreed to a trade truce at the G20 meet­ing on Dec 1, and have put any more tar­iffs on hold. Also, Pres­i­dent Trump and Pres­i­dent Xi Jin­ping had a pro­duc­tive phone call last week­end.

Trump ad­min­is­tra­tion of­fi­cials are sched­uled to travel to Bei­jing for trade talks early next week. Reuters and Bloomberg con­trib­uted to this story.

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