In a letter to investors Wednesday, Apple CEO Tim Cook said the company's fiscal Q1 2019 revenue would be lower than expected, a rare occurrence from one of the most valuable and profitable companies in the world.
Halo Investing's Jason Barsema and BigEyedWish's Ian Wishingrad on Apple cutting its sales forecast due to a downturn in iPhone sales in China and the outlook for Amazon. Apple has been steadily raising the price of its newest and most powerful iPhones each year, with some models now topping $1,000. Apple shares were down 8.8 percent at $143.97.
News that the iPhone maker cut its first-quarter revenue forecast, described by one analyst as Apple's "darkest day in the iPhone era", had something for everyone who has panicked over US stocks in the past few months.
Some analysts point to Apple's dependence on iPhone sales to drive revenue and profits, even as it tries to diversify its product base and add services such as music and digital payments.
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China", Cook said on Wednesday. The stock has fallen about 30 percent since Cook said in November that the company may miss its holiday quarter sales estimate.
Sacconaghi noted that while Apple "squarely attributed its shortfall to China", revenue for iPhone outside of China "still appeared to fall $3B+ short of Apple's expectations".
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Apple blamed slow iPhone sales-especially in China-as well as fewer-than-expected iPhone upgrades for the shortfall. This is also the fourth quarter of the year for 2018 - but, again, the first financial quarter for Apple for 2019.
Apple's first instance of revised earnings guidance since 2002 has the potential to rattle the financial markets as it puts the spotlight on China's woes and the dependence of the largest USA companies on strong growth in the world's second-largest economy. A functional iPhone 7 Plus with the same amount of storage can get a trade in value of 1939 yuan ($282). Universal Display Corp. declined 3.5 per cent and Lumentum Holdings Inc. tumbled 8.7 per cent. Shares of US retailers that sell Apple products were also weak on the news.
STMicroelectronics shares were down more than 9 percent.
China's economy grew at its weakest pace since the financial crisis last quarter as its trade war with the U.S. added uncertainty to an already rocky environment.
Apple did not immediately respond to a request for comment on Thursday.
"This is just another little tea leaf as to the goings on behind the curtain in China and last night's PMI coming out weaker than people thought", said Kevin Caron, a senior portfolio manager at Washington Crossing Advisors.
Peter Richardson, a research director at Hong Kong-based Counterpoint Research, said it was hard to see a catalyst that will help Apple recover lost ground in China. These analysts said in a research note that services represent a huge business opportunity for Apple.