22 October 2019
Apple has lowered its revenue guidance for the three months ended Dec. 29, blaming a weak Chinese economy. Photo: Reuters
Apple has lowered its revenue guidance for the three months ended Dec. 29, blaming a weak Chinese economy. Photo: Reuters

Apple cuts revenue forecast, citing weak China sales

Apple on Wednesday cut its revenue guidance for its fiscal first quarter, citing weaker sales in China amid a slowdown in the economy in the key market which has been buffeted by a US trade war.

The iPhone maker said it now expects US$84 billion in revenue for the three months ended Dec. 29, lowering a previous forecast that had been in the US$89-93 billion range.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” CEO Tim Cook said in a letter to investors, Reuters reports.

“In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad,” Cook wrote.

Wednesday was the first time that Apple issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007, Reuters noted.

Apple shares, which had been halted ahead of the announcement, slumped 7.7 percent in after-hours trade in New York, dragging the firm’s market value below US$700 billion. 

The revenue cut raises questions about whether Apple is being punished by Chinese officials or consumers in favor of local rivals such as Huawei, whose pricey smartphones compete with the iPhone and whose telecoms equipment US officials are considering banning, Reuters said.

Cook told CNBC that Apple products have not been targeted by the Chinese government, though some consumers may have elected not to buy an iPhone or other Apple device because it is an American company.

“The much larger issue is the slowing of the (Chinese) economy, and then the trade tension that has further pressured it,” Cook said.

Some analysts, however, questioned the impact of Apple’s own actions.

Apple has held firm on its premium pricing strategy in China despite the risk of a slower economy, a factor that has been exacerbated by the strong US dollar.

“The question for investors will be the extent to which Apple’s aggressive pricing has exacerbated this situation and what this means for the company’s longer-term pricing power within its iPhone franchise,” James Cordwell, an analyst at Atlantic Equities, told Reuters.

On Apple’s earnings call in November, Cook cited slowing growth in emerging markets such as Brazil, India and Russia for the lower-than-anticipated sales estimates for the company’s fiscal first quarter. But Cook specifically said he “would not put China in that category” of countries with troubled growth.

That all came before the damage to the Chinese economy from trade tensions with the US became clear.

On Wednesday, China’s central bank magazine said the country’s economic growth could fall below 6.5 percent in the fourth quarter as companies face increased difficulties there.

Apple is now the highest-profile multinational corporation to warn that the economic slowdown in China could hurt its business.

Automakers such as Ford, Hyundai and Nissan all previously said they planned to cut production in the country.

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