UPDATED 20:43 EDT / JANUARY 02 2019


Stock market tanks as Apple slashes iPhone sales forecast


Apple Inc. today sent tremors through the tech industry and Wall Street after slashing its sales forecast for the first time in 17 years.

The company said a faster-than-expected economic slowdown in China was to blame for the shortfall. Apple’s stock fell by almost 8 percent after Chief Executive Officer Tim Cook wrote a letter to shareholders explaining that iPhone sales were well below what was forecast for the final months of 2018.

Cook’s unscheduled update had the effect of unsettling investors in other major tech firms, including Amazon.com Inc. and Microsoft Corp., which both saw their stock fall today, the first trading day of 2019.

Update: On Thursday, the overall market followed suit, with the Dow Jones Industrial Average down more than 600 points, or 2.6 percent, and the tech-heavy Nasdaq was also down almost 2.6 percent. Apple’s shares were falling nearly 10 percent.

Cook warned investors that Apple will report revenue of just $84 billion for the three-quarter period ending in December, down from its original forecast two months ago of $91 billion in revenue. The Christmas and New Year holiday period is traditionally an especially busy time for Apple as it follows the release of new iPhone models.

The shortfall means that Apple is now shrinking as a company, and will report its first decline in sales in more than two years when it posts its quarterly financial results in a few weeks’ time.

In his letter, Cook explained that his company was selling less iPhones than expected because of China’s slowing economic growth, something that’s not being helped by its ongoing trade war with the United States.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook said.

Cook’s statement comes after it was revealed last week that a number of Chinese companies are apparently trying to dissuade their employees from buying Apple’s products in response to the ongoing tensions with the U.S. Some of the companies have reportedly offered their workers incentives to buy products from local firms instead, while others have even gone so far as to fine those who buy Apple’s devices.

But China isn’t the only problem market for Apple. Cook said that sales in other nations had also been disappointing. Consumers in some countries have been put off by rising prices, while others have simply decided not to upgrade their iPhones at this time, partly as a result of Apple’s decision to cut the price of replacement batteries that can extend the life of older devices.

“In some developed markets, iPhone upgrades also were not as strong as we thought they would be,” Cook said in his letter. “While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, U.S. dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.”

About six months ago Apple became the first publicly traded company in the world to see its value surpass the trillion-dollar mark. However, it has now lost more than a third of its value since that peak in August, and it’s no longer the world’s most valuable company. Both Amazon and Microsoft have surpassed Apple in that regard, and today’s slump means it could soon fall behind Alphabet Inc., the parent company of Google LLC.

Analyst Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that Cook’s warning to investors is not a surprise, since the company’s suppliers have been warning of a slowdown for several months.

“Apple’s challenge is very simple, to keep its meteoric growth going it either needs to drive more iPhone sales at an acceptable profit level, raise prices on the same or less iPhone units, or grow new product or service categories that more than fills the lack of iPhone profit growth dollars,” Moorhead said.

Unfortunately for Apple, driving new iPhone sales won’t be easy as it faces significant challenges on the feature front, Moorhead added. For one thing, Apple is rolling out new 5G capabilities into its products much more slowly than its rivals are. “All premium Android phones will have 5G in the first half of 2019, but iPhones will likely have to wait until Q4 of 2020,” he noted.

In what looks to be an attempt to soften the blow, Cook noted that Apple’s services division, which includes apps and music sales, grew its revenue in the December period by 25 percent, to $10.8 billion. Sales of wearable devices such as the Apple Watch also grew by more than 50 percent, Cook said.

“The company is growing its services and ‘other’ categories, just not enough to drive overall revenue growth,” Moorhead said. “I am not concerned for the company, but it’s likely investors will not see the value it was at until they can see a likely path to double-digit revenue growth.”

But even the bright spot of services may be in for a beating, according to one analyst who has touted services as a hidden gem at Apple.

“We are quite concerned that Services growth is going to slow meaningfully beginning in the March quarter,” Macquarie Capital (USA) Inc. analyst Ben Schachter said in a note to clients. “In other words, just as investors hang on to Services as AAPL’s life preserver in the choppy seas, it is going to float away.”

The reasons are many. “We think the top three Services drivers (Licensing, App Store, and Apple Care) are all likely to slow in FY’19 and the faster-growing Services business (Music, iCloud, and Apple Pay) are not big enough to offset the slowdown (and Music margins are relatively low),” he wrote. ” The economic model for the App Store will come under increasing competitive, legal, and regulatory pressures” from China as well as Google-related licensing and the iPhone decline’s impact on Apple Care revenues.

With reporting from Robert Hof

Photo: darf_nicht_mehr_hochladen/Pixabay

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