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Apple Revises Earnings Expectations Citing Challenges in China

Citing ongoing challenges in China and sluggish iPhone sales in that country, Apple CEO Tim Cook has issued a rare revision of earnings expectations for Apple. The Cupertino company will be announcing their last quarter financial results on January 29, 2019 with Mr. Cook indicating that revenue for the company was expected to be around $84 Billion, down from the $89 to $93 Billion that was originally projected.

Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance. 
While it will be a number of weeks before we complete and report our final results, we wanted to get some preliminary information to you now. Our final results may differ somewhat from these preliminary estimates. 

In the Press Release by Apple on the matter, the company outlined four major reasons why the earnings would be lower than expected.

  • The launch of the iPhone XS and XS Max earlier than the previous year’s iPhone models, thus impacting the December quarter for the company. The company expected there to be a difficult year-to-year comparison for this quarter.
  • A strong US dollar created financial headwinds globally
  • “an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1”
  • Economic weakness in emerging markets, particularly in China

The release also pointed to lower than expected iPhone upgrades.

Mr. Cook then went into a lengthy discussion around China, pointing out that the country’s economy has slowed and that iPhone sales in the country were lower than expected.

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. 

Ultimately this has produced a wave of speculation and concern. There is already one lawsuit in the works against the company over the revision and it is widely expected that Apple’s stock will take significant hit today and likely again on January 29. Apple (APPL) closed at $157.92 yesterday as trading was halted when Apple informed NASDAQ of the coming announcement (standard procedure). In after hours trading, the stock is down to $145.87, down 7.63%.

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