Apple Blames China For Sales Forecast Cut.

 Apple Blames China For Sales Forecast Cut.

US tech giant Apple has taken the rare step of slashing its quarterly sales forecast, acknowledging that demand for iPhones is slowing and confirming investor concerns that its most profitable product has lost some of its consumer appeal amid competition from cheaper rivals.

In a letter to shareholders, Chief Executive Officer Tim Cook said Apple’s revenue for the October-December quarter – including the crucial holiday shopping season – will drop well below the company’s earlier projections and those of analysts.

Apple now expects revenue of $84bn for the period, below analysts’ estimate of $91.5bn, according to IBES data from Refinitiv. Apple originally forecast revenue of between $89bn and $93bn. The official results are scheduled to be released on January 29.

The news sent Apple shares tumbling 7.7 percent in after-hours trade, triggering a broader selloff in the stock market and dragging the company’s market value below $700bn.

Cook traced most of the revenue drop to China, where the economy has been slowing and Apple has faced tougher competition from smartphone makers such as Huawei and Xiaomi. US President Donald Trump has also raised fresh tensions between Washington and Beijing by imposing tariffs on more than $200bn in goods, although so far the iPhone has not been affected directly.

China’s “economy began to slow there for the second half”, Cook said during an interview with CNBC on Wednesday afternoon. “The trade tensions between the United States and China put additional pressure on their economy.”

In his letter, Cook, who became Apple’s CEO in 2011, said the company anticipated challenges in key emerging markets but “did not foresee the magnitude of the economic deceleration, particularly in Greater China”.

“In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad,” he wrote.

Cook also acknowledged that consumers in other markets are not buying as many of the latest iPhones, released last autumn, 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 economic toll of China-US trade war (2:43)
“What Apple would like to do, as much as possible, is to cite China and the trade war as the cause of this – but over the last couple of years Apple has significantly increased the price of the iPhone,” Shaun Nichols, technology reporter at The Register, a tech news and opinion website, told Al Jazeera.

“Tim Cook’s official explanation for this kind of a combination – the trade war is causing problems in China, worries over the economy and that’s making people less likely to go and purchase Apple products.”

Hal Eddins, the chief economist at Apple shareholder Capital Investment Counsel, said Cook’s comments on the effect of the US trade tensions with China “might be a dig at Trump, but mostly he may be using the trade turmoil as an excuse for some missteps they’ve made over the last year”.

Analysts say Apple must now try to find a way to win back Wall Street’s confidence and reverse a steep decline that has erased $350bn in shareholder wealth in just three months.

“This is Apple’s darkest day during the Cook era,” Wedbush Securities analyst Daniel Ives said. “No one expected China to just fall off a cliff like this.”

While Trump’s trade war with China is not helping Apple and other US technology companies, Ives believes Apple’s price miscalculation created an opening for rivals with less costly alternatives that still worked well.

The price gap is one reason Huawei surpassed Apple in smartphone sales from April through September last year to seize the number two spot behind industry leader Samsung, according to the research firm International Data Corp.

Ayomide Oyewole

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