Apple cuts quarterly sales guidance, citing slow Chinese sales
- Apple took the unusual step of cutting its quarterly sales estimates, citing a significant slowdown in China amid trade tensions with the United States, according to a Jan. 2 statement from CEO Tim Cook. The company revised its revenue forecast to $84 billion for the quarter that ended Dec. 29, down from the previous estimate of between $89 billion and $93 billion, according to The Wall Street Journal.
- Cook also cited supply constraints for the cut to guidance as the company introduced an unprecedented number of new products for the holiday shopping season. The company couldn't keep up with demand for the Apple Watch Series 4, iPad Pro, AirPods and MacBook Air, he said.
- The timing of last year's line of new iPhones also made comparisons difficult during the quarter, Cook said. The company's most expensive phones, the iPhone XS (starting at $999) and iPhone XS Max ($1,099) started shipping in September, or in Apple's fiscal fourth quarter. Shipments for the iPhone X started in November 2017, putting it in Apple's first quarter.
Apple's lowered guidance caught the market by surprise, with the stock selling off after Cook's announcement. The company hadn't provided revised financial guidance since 2002, making Wednesday's announcement rare. Still, there had been hints of soft demand, with iPhone parts suppliers like Lumentum, Japan Display, Qorvo and Cirrus Logic warning of slowing smartphone sales in the last three months of the year and Apple announcing it would stop reporting unit sales for its products. Apple's announcement led Goldman Sachs to cut its full-year outlook for the tech giant. The investment bank lowered its 2019 revenue estimate for Apple by 6% to $253 billion amid concerns about China, CNBC reported.
Apple is reworking its iPhone marketing strategy to entice customers to buy a new, higher-priced device every two to three years, a formula that's worked well in the past. But more people are deciding to replace the batteries on their existing iPhones instead of getting a newer model, Cook said in his statement. Apple last year cut battery replacement fees to $29 from $79 after apologizing for purposely slowing down older phones in order to extend battery life.
Another impediment to sales growth is the effort by wireless carriers to wean customers away from subsidies that cut the upfront prices customers pay for new phones. Faced with soft demand for its latest iPhone, Apple last month started offering generous trade-in deals during the crucial holiday buying season. "To a consumer, the trade-in looks like a subsidy because it lowers the price of the phone that you want," Cook told CNBC on Wednesday. The U.S. retail price for the new iPhone XR is $749, but trading in an iPhone 7 Plus in good condition drops the price to $449, he said.
The rollout of high-speed 5G mobile technology likely will be the next major driver of smartphone sales growth, with Gartner predicting 5G mobile phones sales will total 65 million units next year. However, Apple isn't set to release a 5G iPhone until 2020, lagging behind rival Samsung. Verizon and Samsung last month said they plan to start selling a 5G smartphone to U.S. consumers in the first half of 2019. AT&T followed that announcement with its own plan to offer two models of Samsung 5G phones this year.
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