Apple Revises Sales Forecast, Cites Fewer iPhone Upgrades and Problems in China

After stock markets closed today, Apple issued a press release, sharing a copy of a letter from CEO Tim Cook to the company’s investors, detailing revised guidance for upcoming fiscal 2019 Q1:

To Apple investors:

Today we are revising our guidance for Apple’s fiscal 2019 first quarter, which ended on December 29. We now expect the following:

  • Revenue of approximately $84 billion
  • Gross margin of approximately 38 percent
  • Operating expenses of approximately $8.7 billion
  • Other income/(expense) of approximately $550 million
  • Tax rate of approximately 16.5 percent before discrete items

We expect the number of shares used in computing diluted EPS to be approximately 4.77 billion.

Below are the numbers from Apple’s previous 2019 Q1 guidance, shared after they released 2018 Q4 earnings:

  • revenue between $89 billion and $93 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $8.7 billion and $8.8 billion
  • other income/(expense) of $300 million
  • tax rate of approximately 16.5 percent before discrete items

Apple’s revised revenue expectations are down $5 billion, while they boosted their other income/expense to $550 million from $300 million.

Cook says “economic weakness in some emerging markets”, to go with other factors have “resulted in fewer iPhone upgrades than we had anticipated.” These two reasons were why Apple revised 2019 Q1 guidance.

In regards to emerging market challenges, Cook notes Greater China saw “economic deceleration”, while also adding in “rising trade tensions with the United States,” which resulted in fewer consumers visiting Apple Stores and partners in the country.

As for fewer iPhone upgrades, Apple says “in some developed markets, iPhone upgrades also were not as strong as we thought they would be.” The company states “we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.”

Apple says they still expect to report “a new all-time record for Apple’s earnings per share,” while also finishing 2019 Q1 with $130 billion in net cash.

Cook finishes off by saying “expectations are high for Apple because they should be. We are committed to exceeding those expectations every day.”

With Apple’s discounted iPhone battery replacement program, it breathed new life into older iPhones, which clearly impacted upgrades. Also, newer iPhone models saw an increase in prices in Canada, which were not helped by the US dollar exchange rate. That alone can tell you why people didn’t upgrade their iPhones, especially when new features coming out nowadays aren’t exactly mind-blowing like they used to be (Face ID is still great, but Touch ID can also hold its own in 2019). Don’t even get people started about bent iPad Pro models not being a defect…

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