Yesterday Apple announced that its first quarter revenue for 2019 would be sharply below what had been expected:
Apple cut its revenue guidance for its fiscal first quarter, sending its stock sharply lower in after-hours trading as concerns continue to mount over the company’s future iPhone and China growth.
In a letter to investors, Apple CEO Tim Cook said the company now expects revenue of $84 billion in the quarter ending Dec. 29.
Apple had anticipated revenue of between $89 billion and $93 billion for the quarter. The number is also lower compared with the $91.5 billion in revenue analysts previously anticipated, according to earnings-tracker Refinitiv.
“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,” Cook wrote.
reported USA Today while at Atlantic Alexis C. Madrigal analyzed the news:
And here we are in early 2019 and it’s clear that the Chinese economic slowdown is already bad. Today’s news makes it clear that the slowdown might be very bad, and worsening at a pace that took even Apple by complete surprise.
The other Asian economies are already seeing the damage. And that’s before the trade war tariffs snap into place come March
“So, what is the positive signal?†Jayant Menon, the lead economist at the Asian Development Bank, asked the South China Morning Post, rhetorically, this week. “There isn’t one,†he said.
I would add a couple of observations. First, no other American company is as exposed to the behavior of Chinese consumers as Apple. China accounts for nearly 20% of Apple’s iPhone sales and, as noted by Mr. Madrigal, Apple is now an iPhone company. Nike, the other U. S. company with substantial consumer sales in China, has seen flat sales in China for a couple of years now. Will it have an announcement of its own?
The message here is that doing business with China has risks as well as rewards.
My other observation is that smartphones are a commodity product but a commodity product like few others. You’ve got to produce something new every once in a while and that’s an expensive or even impossible proposition. Apple can’t maintain its brand by producing a product that’s just as good as those of every other smartphone manufacturer in the world. It’s got to produce something new and sexy. Does Apple without Steve Jobs have that mojo? Stay tuned.
I’m sticking to a prediction I’ve made before. In 10 years I won’t be a bit surprised if none of the companies with the biggest fully capitalized value, e.g. Apple, Amazon, Facebook, Google, etc., don’t exist in their present forms.
Well there a couple of factors beyond the state of the Chinese economy – factors that Apple controls.
Raising prices on all your product while offering barely incremental innovation does reduce customer demand. Just a little over two years ago; a top of the line IPhone 6S+ was 750. Now an IPhone XS Max is 1100. That is a 50% hike. Smartphones is not healthcare.
Their product lineup has also gotten very convoluted – too many models with unclear trade offs.
Apple’s lucky in that the US smartphone market is shockingly uncompetitive, a duopoly between Apple and Samsung. The Chinese smartphone market is muc more competitive (Huawei, Xiaomi, Vivo); notice Apple’s letter did not mention if they are gaining or losing market share in China.
The saving grace is most American tech companies never broke into the Chinese market; so any slowdown will have minimal effect. Intel is the other company that has a lot of Chinese sales; and so far they haven’t said anything (they announced increased capex two months ago based on increased demand). Take the implications of that….
Worth noting; one of the biggest Apple investors now is Warren Buffet’s Berkshire Hathaway. This combined with his past investment in IBM; it seems his old comment that he didn’t understand tech stocks was actually pretty prescient.