Apple cuts sales forecast as US-China trade war bites

04 January, 2019, 05:17 | Author: Darnell Patrick
  • An Apple store in China

When compared to the estimates provided by Apple to its investors in November, the revenue amount took a drastic nosedive, while the "other income/(expense)" category went through the roof, reaching approximately $550 million from an initial estimate of $300 million.

Most of the unforeseen drop in sales revenue is a result of economic deceleration in "Greater China", he said in an earnings call. A chunk of this year's worldwide sales decline for iPhone and iPad occurred in China, according to Cook's letter. He also said that upgrades to new iPhone models in other countries were "not as strong as we thought they would be". Where the iPhone X launched in Apple's first fiscal quarter of 2018, the iPhone XS and XS Max shipped in Q4 2018, "placing the channel fill and early sales in that quarter" and skewing comparisons with the current quarter.

People walk past an Apple store in Beijing on Dec 11. The slow rate of growth of the Chinese economy, as well as the conflict between local conglomerates such as Huawei and Western authorities, are said to have contributed to the decline in sales of Apple products. "There are a heck of a lot of USA companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China".

China's economy grew at its weakest pace since the financial crisis last quarter as its trade war with the U.S. added uncertainty to an already rocky environment.

Beyond demand in China, Cook also blamed fewer carrier subsidies, USA dollar strength-related price increases in foreign markets and customers taking advantage of cheaper battery replacements as other factors.

The Silicon Valley company expects revenue of around $84 billion, rather than the $89 billion to $93 billion it was expecting before Christmas. Apple will be keen to prove that its disappointing quarterly earnings are not part of a wider trend. Its revenues from wearables, computers, and services divisions have grown revenues year-on-year by nearly 19 percent.

Financial markets have started the new year in much the same rocky way as they ended 2018.

The announcement caused Apple to temporarily halt trading in its shares, and when the stock resumed trading after-hours, investors promptly dropped its price to the tune of 7.5 per cent. ®.

Given that iPhones command the biggest share of Apple's revenue pie, a slowdown there indicates a real problem.

"Doubling down on Asia markets for a second day today would be the latest downward revision in Q1 guidance from tech giant, Apple", Jingyi Pan of IG said in a market commentary.

"We believe the economic environment in China has been further impacted by rising trade tensions with the United States".


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