Subscribe

Apple cuts forecast amid China market slump

Staff Writer
By Staff Writer, ITWeb
Johannesburg, 03 Jan 2019
Apple CEO Tim Cook.
Apple CEO Tim Cook.

Apple has lowered its revenue guidance from $93 billion $84 billion, ahead of its earnings call scheduled for 29 January.

In a letter to investors, CEO Tim Cook says: "Today we are revising our guidance for Apple's fiscal 2019 first quarter, which ended on December 29. We now expect the following: revenue of approximately $84 billion, gross margin of approximately 38%, operating expenses of approximately $8.7 billion, other income of approximately $550 million, and tax rate of approximately 16.5% before discrete items.

Apple expects the number of shares used in computing diluted EPS to be approximately 4.77 billion.

"Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance," says Cook.

"While it will be a number of weeks before we complete and report our final results, we wanted to get some preliminary information to you now. Our final results may differ somewhat from these preliminary estimates," he adds.

"When we discussed our Q1 guidance with you about 60 days ago, we knew the first quarter would be impacted by both macroeconomic and Apple-specific factors. Based on our best estimates of how these would play out, we predicted that we would report slight revenue growth year-over-year for the quarter. As you may recall, we discussed four factors:

"First, we knew the different timing of our iPhone launches would affect our year-over-year compares. Our top models, iPhone XS and iPhone XS Max, shipped in Q4'18 - placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1'18, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1'19, and this played out broadly in line with our expectations.

"Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

"Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained.

"Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected. In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated. These last two points have led us to reduce our revenue guidance. I'd like to go a bit deeper on both.

China woes

Cook says while Apple anticipated some challenges in key emerging markets, the company did not foresee the magnitude of the economic deceleration, particularly in Greater China.

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

He points out that China's economy began to slow in the second half of 2018. "The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the US.

"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. And market data has shown that the contraction in Greater China's smartphone market has been particularly sharp."

Share