‘PERFECT STORM’ FOR APPLE AFTER REVENUE OUTLOOK FALLS
CEO expects iPhone maker to fall more than $7bn short of estimates amid challenges in 2019
Apple, has cited economic slowdown in China, one of its biggest markets, and weaker demand for its newer products.
The tech giant revised its revenue outlook downwards for the first time in nearly two decades on Wednesday, with another challenging year expected after a perfect storm of setbacks.
Chief executive Tim Cook said the company expects revenues of $84 billion in the fourth quarter of 2018, more than $7bn short of earlier estimates.
The challenges for Apple are not about its recent downbeat financial filings, but about the rise of politics in business, Sam Blatteis, chief executive of The Mena Catalysts, which advises technology companies on policy and government affairs in the region, told The National.
The Greater China market has contributed more than 18 per cent in Apple’s overall revenues in the past four quarters. Now, a weaker Chinese economy, slowed by the ongoing US-China trade war, is compromising Apple’s bottom line.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Mr Cook wrote in a letter that was sent to investors.
China’s domestic market continues to be challenged as overall consumer spending around smartphones has fallen, noted the International Data Corporation in Massachusetts.
“High penetration levels, mixed with some challenging economic times, has slowed the world’s largest smartphone market [China],” said Ryan Reith, programme vice president for IDC’s mobile device trackers.
Despite negative sentiments, it is expected that the Chinese smartphone market will recover this year.
But Abbas Ali, managing editor of TechRadar Middle East, said the trade war is not the only foe for Apple. Rising competition from China’s Huawei is also to blame.
“Apple pointed to weaker de- mand in China, but Huawei grew considerably in that time period [in China],” Mr Ali told The National.
“It’s not that the Chinese buyers aren’t buying phones – they’re just buying fewer iPhones.”
This could be due to the high cost of the iPhone or negative sentiment in China towards American products because of the trade war, said Mr Ali. Judging one quarter’s performance should not be the basis for judging the future of Apple, he added.
Weaker demand for iPhones, which contributed nearly 60 per cent in the company’s revenues, was hinted at earlier by Apple during the last earnings call last November.
It announced at the time it would no longer be disclosing the number of units sold for the iPhone.
Chinese tech giant Huawei, which is catering to both lowand high-income customers, dethroned Apple from the second spot in smartphone shipments in the Middle East and Africa in the second quarter of 2018, according to the GFK May 2018 report.
Worldwide, South Korean company Samsung retains the biggest global market share of smartphones at 18.9 per cent, according to US researcher firm Gartner.
Samsung is followed by Huawei and Apple with 13.4 and 11.8 per cent, respectively.
There were also other factors that ultimately contributed to the bleak outlook for Apple’s holiday quarter.
Its latest iPhone models were released in different quarters in 2017 and 2018. In 2017, it launched the new iPhone X in November – just in time for the holiday season – while the iPhone XS of 2018 was launched in September, leaving a portion of sales for the third fourth quarter and pinching holiday performance.
Apple’s battery replacement programme and optimisations in iOS 12 also made older iPhones noticeably faster – preventing people from upgrading in the past couple of months, said Mr Ali.
The price of Apple’s flagship iPhone is significantly higher now than it was two years ago – up by as much $600.
It is also likely that people will be holding on to their $1,000 or $1,500 phone longer than they would have kept a phone that costs much less, said Mr Ali.
With mounting competition from the likes of Samsung, which is launching the Galaxy S10 next month, and Huawei poised to retain its second spot in terms of market share, 2019 may not prove any easier for Apple.