Hit by China, Apple trims forecast
Apple Thursday cut its revenue forecast for the last quarter of 2018, blaming lower-than-expected iPhone sales in emerging markets, especially China where local companies are booming.
“We knew the quarter would be impacted by both macroeconomic and Apple-specific factors,” CEO Tim Cook said in an open letter to investors.
In Apple’s first fiscal quarter, ended December 29, the company’s revenue is now forecast at US$84 billion, lower than original estimates of between US$89 and US$93 billion.
Gross profit margin was expected to be about 38 percent, lower than the forecast of 38 to 38.5 percent, Cook said.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration,” particularly in China, Cook said in his letter.
The revenue drop for the just-ended quarter underscores how the economic slowdown in China has been sharper than many expected.
Apple shares plunged about 8 percent in after-market trading on the news, which also hammered Asian suppliers and triggered a broader sell-off in global markets.
Goldman Sachs has cut Apple’s price target to US$140 from US$182. Other investment banks and researchers also cut their outlooks.
“It’s the first time for Apple to cut its revenue forecast in almost 20 years,” China Merchants Securities said in a research note.
Apple finds itself in a tricky position in China, a key market and where it manufactures the bulk of its iconic products.
In the third quarter of calendar 2018, the latest data available, worldwide smartphone sales fell 7 percent, the worst third quarter since 2015.
China’s smartphone market saw a year-on-year fall in sales of 15.2 percent in the quarter, according researcher Canalys.
Apple faces increasingly fierce competition, especially from China.
Huawei recently overtook the American company as the world's largest smartphone company after Samsung.
Despite the global downturn, Chinese companies such as Huawei, Xiaomi, Oppo and Vivo saw growth in the third quarter.
They have launched high-end products like Huawei’s Mater 20, Vivo’s NEX and Oppo’s Finder to challenge Samsung and Apple in the premium market.
In December, Apple adopted an aggressive pricing strategy: the new iPhone XS sells from 6,599 yuan (US$956) for consumers who can trade in a used iPhone — 2,000 yuan lower than the official price of 8,699 yuan.
It’s a rare strategy for Apple to offer big trade-in discounts for new products, which were released only several months ago, analysts said.
Global iPhone sales were estimated to be 60 to 70 million units in the (US) fourth quarter and 38 million to 45 million in the first quarter.
The US financial year ends September 30.
Huawei sold more than 200 million smartphones globally last year and expects further growth this year.
Besides the lower-than-expected iPhone sales, Apple also faces other challenges in China.
Apple’s business in China is under a cloud after a court ordered a ban in December on sales of seven old models of iPhones as a result of a patent dispute with chip maker Qualcomm.
The Fuzhou Intermediate People’s Court granted Qualcomm’s “preliminary injunction” request, which requires Apple to cease infringing Qualcomm patents through “unlicensed importation and sale” in China.
The order covered the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X.
Meanwhile, the strong dollar adds to pressure on the company, which depends strongly on emerging markets.
The strong US dollar will create foreign exchange headwinds and we forecast this will reduce Apple’s revenue growth by about 200 basis points as compared to the previous year, Cook said.