Published: Sat, January 12, 2019
Finance | By Loren Pratt

Apple Blames Weak iPhone Sales on China, Fewer People Upgrading

Apple Blames Weak iPhone Sales on China, Fewer People Upgrading

In an interview with CNBC, CEO Tim Cook has indeed confirmed that Apple is experiencing weak iPhone sales.

The chief executive pointed to slowing growth in China, the world's second-biggest economy, as the key factor.

With Apple's iPhone unit sales flatlining, Apple has shifted to trying to get consumers to pay more for each device. The company even allowed iPhone users to turn the throttling off if they so desired.

Apple now expects revenue for the three months ending in December to be about $84 billion, down from an earlier estimated range of between $89 billion and $93 billion. Again the Chinese market was singled out but in developed markets "iPhone upgrades also were not as strong as we thought they would be". Last year, Apple had reported sales of $88.3 billion in the fiscal first quarter, so this slowdown means Apple is reporting a holiday quarter slowdown for the first time since Cook became the CEO in 2011.

Cook also acknowledged that consumers in other markets aren't buying as numerous latest iPhones, released last fall, as Apple had anticipated - a factor that could stem from a starting price of $1,000 for Apple's top-of-the-line iPhones. The company also expects a gross margin of approximately 38 per cent and other expenses to sit around $550 million approximately.

The warning, which came after trading in NY closed on Wednesday, looked likely to rattle already-volatile stock markets when they reopen on Thursday - with stock index futures pointing to Wall Street falls. And after several component makers in November forecast weaker-than-expected sales, some market watchers called the peak for iPhones in several key markets. But Cook specifically said he "would not put China in that category" of countries with troubled growth.

The tech company's troubles send a message for companies doing business in China, or suppliers with customers that do business in China, that the effects of trade tensions and a slowing economy are rippling to consumers, curbing demand and spending.

"We believe the economic environment in China has been further impacted by rising trade tensions with the United States". This has some investors anxious that Apple's flagship device has lost its mojo.

In his letter, Cook said Apple has $130 billion in net cash and that it intends to continue its efforts to reduce that cash balance to net zero, which the company has so far accomplished through dividend increases and share buybacks. But while we were celebrating, peeps at Apple were busy evaluating their sales figures and quarterly projections.

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