Weak iPhone demand is behind Apple’s first profits warning since 2002, amid a number of other factors.
Apple revealed that it is preparing for an approximate $9billion less in iPhone revenue than expected, going from a projected high of $93billion to a revised figure of $84billion. It will be “a number of weeks” before the final results are completed and reported by Apple, but the giant wanted to “get some preliminary information” to investors beforehand.
Cook’s letter cited battery replacement, fewer carrier subsidies and China’s economy as the chief reasons behind it. It stated that previous discussions with investors had identified the first quarter would be impacted by macroeconomic factors, as well as Apple-specific ones.
Why has Apple had to cut its guidance figures?
There were four factors in particular already on the radar. The different timing of iPhone launches, a strong US dollar creating foreign exchange headwinds, and an unprecedented number of new products were issues all previously identified. These all played out as expected by Apple.
The fourth issue, economic weakness in some emerging markets, had a “significantly greater impact” than Apple had projected. “In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated,” wrote Cook.
“These last two points have led us to reduce our revenue guidance. I’d like to go a bit deeper on both.”
He added: “While we anticipated some challenges in key emerging markets, we 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.”
Cook stated China’s economy began to slow in the second half of 2018. Apple believe the economic environment has been “further impacted” by rising trade tensions with the US. Though the company then stated that, despite challenges, it trusts“our business in China has a bright future.”
Any positives for Apple?
Though shares and consumer perception has to an extent been affected by the news, it’s not all bad for Apple.
In fact, Cook mentioned that there had been “many positive results in the December Quarter”, despite the disappointment of revising guidance.
Other categories outside the iPhone business, including Mac and iPad products as well as wearables and service, actually grew by 19%.
This was the first year in five that I didn’t upgrade my iPhone. Two reasons:
– iPhone X was really, really good, and battery life is still great
– The 2018 models were functionally identical to the iPhone X
So: not just China
— Casey Newton (@CaseyNewton) January 2, 2019
BREAKING: Apple shares are halted. Tim Cook's letter to investors: "Our revenue will be lower than our original guidance for the quarter… we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected."
— Selina Wang (@Selina_y_wang) January 2, 2019
Cook believes that Apple’s performance in many areas proved “remarkable strength”. He then pointed out that there were also record-breaking results as well. Apple also expects to report a new all-time record for earnings per share.
So, what now for Apple?
Cook summed up the letter by stating Apple’s cash flow generation and profitability remain strong. It is expected Apple will finish the quarter with around $130billion in net cash.
The Apple team, Cook says, remain as confident as ever in their business strength. Apple will continue to use “periods of adversity” to re-examine its approach.
“Expectations are high for Apple because they should be,” concluded Cook’s letter. “We are committed to exceeding those expectations every day. That has always been the Apple way, and it always will be.”
Read Tim Cook’s full letter to Apple investors to learn further facts, figures and explanation.