Apple cuts sales forecast as China sales weaken, iPhone pricing in focus

Asian iPhone Suppliers May Join U.S. Slide After Apple Target CutMore

Asian iPhone Suppliers May Join U.S. Slide After Apple Target CutMore

It is rare to hear that iPhone buyers prefer to replace their battery rather than upgrade to a new iPhone, which of course also suggests the converse - that Apple has been benefitting from the throttling of older iPhones and the high cost of replacing their batteries to drive sales.

Apple's stock fell 9.96 percent after CEO Tim Cook said told investors Wednesday the company lowered its revenue guidance to $84 billion from the $89 billion to $93 billion it had previously projected.

Rotten news from Apple (NASDAQ: AAPL), Thursday. Analysts had been expecting revenues of around $91bn, according to market analyst FactSet.

Apple claimed a number of reasons why it knew revenue would underperform, citing a slowing economy in China, supply constraints, the build of buyers having upgraded to the iPhone X in January 2018 rather than December 2017 and more, but they were themselves surprised by how rapidly the smartphone market in China collapsed, saying "market data has shown that the contraction in Greater China's smartphone market has been particularly sharp". Counterpoint reported iPhone sales dropped by 17% year-over-year during the third quarter due to the weak initial performance of the new models. We have been flagging China demand issues since late September and Apple's guidance cut confirms our view. Apple shares tumbled after Thursday's open.

Cook said the new iPhone models were released earlier than the flagship iPhone X last year, which created a hard year-over-year comparison. "iPhone, in particular, was very strong double-digit growth there". China's economy has been pinched by the ongoing Sino-US trade war which is spilling over to other Asian economies. The company also sees the traffic to retail stores and partner sellers in China declining in the quarter.

The statement from one of the world's largest companies will further rattle investors already anxious about the slowing Chinese economy. With iPhone's production lines in China, Apple has been caught in between the world's two largest economies.

"It's not going to be just Apple", CEA chairman Kevin Hassett said in an interview on CNN. While we don't have the exact numbers, it's likely that many iPhone customers made a decision to pay the $30 to extend the life of their current handsets rather than shell out hundreds of dollars for a new model. "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". Mid-level officials from the Trump administration are scheduled to travel to Beijing for talks early next week.

According to that report, most analysts had expected Apple to pull in $91.3 billion in revenue during the Holiday quarter - which is ~$7.3 billion more than Cook's updated estimates.

While iPhone revenue accounted for the forecast cut, Apple's other product categories, including the iPad and services, grew a combined 19 percent year-over-year, he said.

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