Apple’s monumental success with the iPhone may have reached its upper limit. The company issued a letter to investors, warning them that revenue during the important, end-of-year holiday quarter will fall below previous estimates by a range of 6% to 10%.
Despite widespread financial uncertainty and a turbulent stock market of late, the move, an unprecedented one under CEO Tim Cook’s tenure, appears to have caught investors off guard. Apple’s stock price was down almost 9% in early trading. Apple’s market valuation has been slashed by more than $300 billion since it became the first public company valued above $1 trillion in October.
The warning has fueled concerns about iPhone sales and Apple’s future success in China, which is locked in a bitter trade war with the U.S. “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,” Cook wrote in his letter to investors.
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While Cook primarily blamed the revenue shortfall on a weakening economy in China, there are other forces that have been in full view for years, especially heightened competition from China’s Huawei, which sells high-end smartphones for lower prices.
“China is a big volume driver for sure and the lack of Indian traction and global upgrades to the new versions also adds to Apple’s woes,” said Bill Ho, principal at 556 Ventures. “Apple is seeing an innovation reversal in contrast to many years ago where they were copied. Now, they have to keep up in features with the Asian device competitors. Looking ahead to its likely conservative approach to 5G and its limited success performance against Qualcomm’s Snapdragon portfolio, they may be in trouble in 2019 and 2020 while Asian competitors flourish.”
Chetan Sharma, founder and CEO of Chetan Sharma Consulting, said the price ceiling in developing markets and increasing upgrade cycles are the main factors impacting Apple of late. “The market is asking for step change improvements that provide discernible perception improvements,” he told FierceWireless. “I think there are still a number of areas that can provide such changes and innovations like battery life, foldable displays and 5G, but they will take some time to get scale.”
Walter Piecyk, analyst at BTIG Research, estimates that Apple’s iPhone sales fell short by 12.5 million units during the quarter. “We estimate iPhone unit sales were less than 64 million in the December quarter, an 18% decline from last year,” he wrote in a note to investors. “That’s the largest decline in unit sales since the March 2016 quarter following the launch of the iPhone 6S.”
Moreover, he expects iPhone sales to drop to 42.5 million in the March quarter, which would represent a 19% year-over-year decline. Apple stopped reporting iPhone unit sales in late 2018. Apple previously forecast revenue of between $89 billion and $93 billion, but the company is now projecting revenue to come in at $84 billion.