Apple blames revenue slump on slowing Chinese economy as iPhone sales slow

Marcus Newton
January 7, 2019

Shares of the iPhone maker cratered almost 8 percent in extended trading Wednesday - knocking some $50 billion off the market cap after the company took the unusual step of cutting its revenue guidance. "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", Cook wrote in a long-winded letter to investors.

Apple's stock has slumped 39 percent since early October.

Ives, the Wedbush analyst, said that even though he thinks most of Apple's issues are self-inflicted, "the quicker and the smoother the US-China talks get settled is good not just for Apple, but for the broader stock market".

"Apple expects to report a new all-time record for the company's earnings per share", Cook said.

Still, the market seemed to be caught off guard.

Chief executive officer (CEO), Tim Cook, noted in an interview that sluggish sales in China hurt iPhone purchase amounts overall.

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At least six Wall Street firms, including BTIG and RBC, lowered their share price forecasts by more than 15 percent after Cook's letter. The iPhone X launched in November 2017, while the iPhone XS and XS Max were released in September.

The tech company's troubles send a message for companies doing business in China, or suppliers with customers that do business in China, that the effects of trade tensions and a slowing economy are rippling to consumers, curbing demand and spending. LVMH and Hermes shares also fell. In late December, the promotional program for the new models went live in China, adding one major perk: users in China cannot only trade in their old iPhones, but also Android phones made by Apple's major competitors in China, including Huawei, OPPO and Xiaomi.

Apple and the White House didn't immediately respond to requests for comment. Over the years there's been a great deal of chatter around the subject of "planned obsolescence", and here we have Apple essentially confirming that this is indeed part of the business model.

The timing of Apple's announcement blaming its shortcomings partly on President Donald Trump's trade war with China may increase pressure on American officials to ease the tensions quickly. The Trump administration responded by Apple products from the tariffs.

Cook said the iPhone "accounts for all of our revenue shortfall", whereas other products in Apple's lineup such as the Mac and iPad are seeing strong growth. In the United States government bond market, a typical safe-haven, the yield on the benchmark 10- year, which moves inversely to the bond's price, sank to an 11-month low. Apple is appealing the decision.

During the past year, the US and China slapped new tariffs on hundreds of billions of dollars' worth of imports in a trade war that threatens to snarl multinational companies' supply lines and reduce demand for their products.

Other reports by MaliBehiribAe

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