Slowing iPhone sales in China drive market plunge

Lift in christmas activations

"Our revenue for Apple's fiscal 2019 first quarter, which ended on December 29, will be lower than our original guidance for the quarter", an open letter from Apple CEO Tim Cook reads.

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.

Via a letter to investors, Cook reduced Apple's prior expected Q1 earnings from $89-92 billion to $84 billion.

Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel, said Cook's comments on how the US trade tensions with China were hurting the company's outlook "might be a dig at (US President Donald) Trump, but mostly he may be using the trade turmoil as an excuse for some missteps they've made over the past year".

He, however, clarified that all other "categories outside of iPhone (Services, Mac, iPad, Wearables, Home, Accessories) combined to grow nearly 19 percent year-over-year". 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.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China", Cook told shareholders. Nevertheless, CFRA Research analyst Angelo Zino noted that the trade-ins are available only through Apple Stores, while most iPhones are sold through wireless carriers.

KitGuru Says: I still like both the iPhone and the iPad but Apple's price increases over the last few years have been taking a toll. Hassett says that Apple and other US companies operating in China, will see their business return in the country if the USA can have a successful negotiation with China.

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There have been plenty of rumblings that Apple hasn't been selling a lot of iPhones through the holiday season.

Apple's shares were halted after the stock market closed Wednesday. Hassett agrees with Apple CEO Tim Cook, who said that "trade tensions between the United States and China put additional pressure on their economy". While that sounds alright in theory, we can't help but think Apple should try a bit harder, perhaps even shift to focus on services more.

Apple shares were down 8% early Thursday.

While Cook remained optimistic that Apple has a "bright future" in China, flagging sales in the country are a key reason for its lower revenue outlook.

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

On Wednesday, Apple said trade tensions had hurt consumer confidence.

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