Apple cuts sales forecast as performance in China weakens

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Apple Inc has cut its quarterly sales forecast after its performance was hit by slowing iPhone sales in China.

Tim Cook, the chief executive, told investors that revenue will be lower than the company’s original guidance for the first quarter, although other items are expected to remain broadly in line with guidance.

Apple CEO Tim Cook Photo: Kevork Djansezian/Getty Images)

Apple CEO Tim Cook Photo: Kevork Djansezian/Getty Images)

In a letter, Mr Cook said: “While we anticipated some challenges in key emerging markets, we 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.

Mr Cook added: “China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the United States.

He added: “As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.

“And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.”

Despite these challenges, Mr Cook believes the business in China has a bright future.

Mr Cook added: “Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline.

“In fact, categories outside of iPhone combined to grow almost 19 percent year-over-year.

“While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be.”

In a note, analysts at Hargreaves Lansdown said that Apple’s revenues are now expected to be just $84bn in the first quarter, down from previous guidance of $89bn-$93bn

Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said: “A flagging Chinese economy and fewer upgrades are the headline reasons for Apple’s stumble, but read between the lines and the tech giant is just a whisker away from suggesting it may have pushed customers too hard on price.

“Fewer subsidies from mobile networks and US dollar strength may be the reasons prices have soared to quite the extent that they have – but with the global economy looking wobbly, we suspect a $1,000 iPhone is a luxury that’s starting to seem excessive to the marginal customer. Cheaper batteries make keeping your old iPhone easier, while rivals, particularly in China, are rapidly closing the technology gap at a fraction of the price.

“Apple’s still a great business, making impressive margins and churning off bucket loads of cash – and the services business is going from strength to strength.”