Apple reports $5 billion dent in Q1 revenue guidance

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In a letter to its investors, Apple CEO Tim Cook put the change in guidance largely down to the Chinese economy and tensions between the US and China

Apple has revised its revenue guidance for the first quarter of 2019 by $5 billion to $84 billion (£67bn) due to poor performance in China.

A “deceleration” of growth in the Chinese economy was blamed for the adjustment but rising trade tensions between the country and the US was cited by Apple CEO Tim Cook as an impact on the economy.

New guidance is a reduction on the lowest revenue estimate made by Apple at the announcement of its Q4 results. At the time Apple predicted revenues of $89Bn to $93Bn (£71Bn-£74Bn) however that is the only prediction that has changed.

In a letter to its investors, Apple CEO Tim Cook said that the manufacturer had failed to foresee economic deceleration in emerging markets, particularly in China.

He wrote: “most of our revenue shortfall and 100 per cent of our year-over-year worldwide revenue decline occurred in greater China across iPhone, Mac and iPad.

“We believe the economic environment in China has been further impacted by rising trade tensions with the United States.

“As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.”

In the letter, Cook went on to say that the change in release cycles for the iPhone XS and iPhone XR ranges, the performance of the dollar and the supply constraints largely “played out inline with [Apple’s] expectations.”

Gross margin of 38 per cent, operating expenses of $8.7 billion (£6.9Bn) and rate of TAX of 16 per cent has stayed the same.

Positives

Despite the revised guidance, Cook added that he believed that Apple has a “bright future” in China, drawing in the increase in service revenue in the region.

Cook also said that the installed base Apple has grown by over 100 million units compared to this time last year and revenues outside of iPhone grew 19 per cent.

He continued: “We are confident and excited about our pipeline of future products and services. Apple innovates like no other company on earth, and we are not taking our foot off the gas.

“We can’t change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results. One such initiative is making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone.

“Customer’s existing phone acts as a subsidy for their new phone, and it is great for developers, as it can help grow our installed base.”

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