Apple tells investors to expect a tough quarter

Apple shares halted on account of news it is lowering its guidance for Q1. Tim Cook explained why in a letter to shareholders on Wednesday. Here’s the key passage:

First, we knew the different timing of our iPhone launches would affect our year-over-year compares. Our top models, iPhone XS and iPhone XS Max, shipped in Q4’18 — placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1’18, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1’19, and this played out broadly in line with our expectations.

Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained.

Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.

In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated.

It all means Apple expects revenue to be $84bn for the quarter – its original estimate was $89-$93bn.

My report for BBC News, with thanks to YouTube for this flattering thumbnail:


Here’s our full piece on all this, including my analysis of where this leaves Apple:

To sum up what Mr Cook told investors: some of this is under Apple’s control, and some of it isn’t.

The economic realities in China – where growth is slowing – mean a region which Apple relied on heavily for new customers is no longer providing that boost. Coupled with a US-China trade war, this might get worse. There’s little Mr Cook can do about that, save lobbying hard, as he has already, for exemptions that help protect Apple’s business.

But there’s something else important at play here. The phenomenal smart phone era, a period that made Apple the world’s richest company, is winding down. That isn’t news. It’s just happening more quickly than Apple had anticipated. Better, more reliable devices, with longer-lasting batteries, mean people aren’t desperate to upgrade at the end of their contract. And ask yourself: what exactly was new about the latest iPhone model? Not a lot. Not enough.

Will Apple’s other products and services be enough to sustain its position? It has been trying to diversify what it does for some time with products like the Apple Watch and other online services, which have grown quickly but fall way short of the profit gained from the all-conquering iPhone.

Trusted commentators are now expecting the company to make a major acquisition to give investors something to feel optimistic about.