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

Financial Mail - - PATTERN RECOGNITION - @shap­shak BY TOBY SHAP­SHAK

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

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