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News: Apple Lowers Guidance for Q1 2019

by on January 2, 2019

In a letter to investors, Apple CEO Tim Cook has adjusted the financial guidance for the fiscal 2019 first quarter that ended on December 29. It’s mostly the iPhone’s fault:

  • 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 […]

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 (Services, Mac, iPad, Wearables/Home/Accessories) 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. While macroeconomic challenges in some markets were a key contributor to this trend, 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.

If you recall from November, the original guidance was:

  • 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

December and January are usually the time of year there’s panic over smaller orders in the supply chain, but this is the first time that I can remember that Apple is getting ahead of actual bad news to try to temper expectations.

There’s no way to spin this other than that it’s bad news, caused by people being happy with older devices, new iPhones being priced out of some people’s budgets, and different economic conditions around the world. While Tim Cook mentions the iPhone battery replacements as a reason for fewer iPhone sales, Apple should be proud of the fact that they make a great product that lasts a long time.

I have my own gripes with the direction Apple is taking in some areas notably prices, the entire portable line), but I still have every intention to replace my iPad, iPhone, and Mac with a new model eventually. The question is just that the “eventually” line is growing for many (myself included), as the technology in the iPad and iPhone has gotten so mature.

At the end of the day, panicking is overrated and Apple is still a very healthy company. It will need to shift, but this should be a wake-up call that the iPhone can’t be the only focus, as it has been for so long.

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