Apple lowers revenue guidance for Q1 thanks to people replacing batteries & 4 other reasons
Repair more, earn less.
Despite the strong sales by their 2018 iPhone releases, Apple finds itself on course to miss revenue targets for the first quarter for the year.
In a letter to investors, Apple CEO Tim Cook, gave a revised guidance on their first fiscal quarter, which ended on December 29, 2018.
Revenue of approximately US$84 billion, down from the previous estimation of US$89 – 93 billion
Gross margin of approximately 38 percent
Operating expenses of approximately $8.7 billion
Other income/(expense) of approximately $550 million
Tax rate of approximately 16.5 percent before discrete items
So what caused that nearly US$10 billion discrepancy?
Cook gave four reasons – timing of iPhone launches, strong USD, supply restraints due to increase in products, economic weakness in emerging markets (mainly China).
Cook mentioned that what ultimately led them to reduce their revenue projections was Apple’s performance in China and that more people are turning to repairing their phones than purchasing new ones.
A big reason cited by Cook for the revenue shortfall was the state of China’s economy.
While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. 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.
These challenges were exacerbated due to the rising trade tensions with the US as well.
Despite this, Cook expressed optimism for the new year in the Chinese market.
Despite these challenges, we believe that our business in China has a bright future. The iOS developer community in China is among the most innovative, creative and vibrant in the world. Our products enjoy a strong following among customers, with a very high level of engagement and satisfaction.
And lastly, while it wasn’t emphasised on as much as the China quandary, Cook did touch on an interesting reason as to why revenue might have seen a shortfall.
While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be.
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, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.
So basically, repairing older iPhones instead of buying new ones is becoming a worrying trend for Apple.
The slashing of their revenue guidance also saw the biggest single day loss in six years.
Image from Wikimedia Commons and Pixabay