In a letter to investors from CEO Tim Cook on Wednesday, Apple lowered its Q1 guidance.
Revenue guidance was revised to $84 billion, from the $89 to $93 billion previously projected. Meanwhile, gross margin was slightly reduced to about 38 per cent from between 38 per cent and 38.5 per cent.
Apple shares declined about 7 per cent when trading resumed.
Apple put the blame on several factors for the lowered guidance, including a weakening Chinese economy and lower-than-expected iPhone revenue. Apple said the lower-than-anticipated revenue happened “primarily in Greater China,” but also said that upgrades to new iPhone models in other countries were “not as strong as we thought they would be.”
Cook’s letter also mentioned about fewer carrier subsidies, price increases due to a stronger U.S. dollar and affordable battery replacements led to lower iPhone upgrades for the quarter.
Cook told CNBC in an interview Wednesday,
“If you look at our results, our shortfall is over 100 per cent from iPhone and it’s primarily in greater China,”
“It’s clear that the economy began to slow there for the second half and what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy.”
iPhone sales were weak in recent months – with a few reports that seemed to be corroborating this. Some Apple suppliers reduced their estimates in the previous quarter. Apple of promoting discounted prices for iPhones on its website if customers traded in an older model. Trade-in value were also increased for some older iPhone models.
Not All is Bad
However, the letter did highlight some areas of growth. Cook said Apple’s device install base increased by 100 million units over the last year (subscriptions like Apple Music and iCloud storage). The company is said to be considering new subscription products through its Apple News and TV apps as well.
Revenue besides the iPhone grew by almost 19 per cent on-year, including all-time record revenue from Services, Wearables and Mac.
