Apple CEO Tim Cook published a letter to investors today warning of weaker than expected first-quarter earnings, citing “fewer iPhone upgrades than we had anticipated.” The weakened demand came primarily from China, although Cook notes that “in some developed markets, iPhone upgrades also were not as strong as we thought they would be.”
In his letter, Cook offers several explanations for the lower earnings guidance: earlier launch timing of the iPhone XS and XS Max compared to the iPhone X, the strength of the US dollar, supply constraints due to the number of new products Apple released in the fall, and overall economic weakness in some markets. But the core issue remains simple: people just aren’t buying as many new iPhones as Apple hoped.
EXCLUSIVE: After cutting Q1 expectations, Apple CEO Tim Cook tells CNBC that the shortfall is primarily in Greater China as trade tensions put pressure on the Chinese economy https://t.co/iOf79ebo17 pic.twitter.com/Lm7Wyp1VOX
— CNBC Now (@CNBCnow) January 2, 2019
Per Cook’s letter, “Lower than anticipated 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.” Cook notes that other divisions of Apple have actually risen by almost 19 percent year over year, but the truth remains that the iPhone has long been Apple’s core business, and if Apple can’t sell enough of them, the whole company struggles.
In an interview with CNBC, Cook elaborates on the shortfall, pointing out that “the trade tensions between the United States and China put additional pressure on their economy,” which resulted in fewer customers. But Cook also mentioned fewer carrier subsidiaries on new iPhones, as well as the dramatically lowered battery replacement price for older models (due to Apple’s iPhone slowdown drama from late 2017), as contributing factors.
All in all, Apple’s revised Q1 guidance forecast is dropping by up to $9 billion in revenue compared to its original estimate. Apple’s stock dropped by nearly 10 percent once trading resumed.