Apple Warns of Quarterly Revenue Shortfall
- Paul Thurrott
- Jan 02, 2019
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79
Apple has finally confirmed what industry onlookers have known for months: It is experiencing a “challenging quarter” thanks to lower-than-expected sales of its newest iPhones.
“Our revenue for Apple’s fiscal 2019 first quarter, which ended on December 29, will be lower than our original guidance for the quarter,” an open letter from Apple CEO Tim Cook reads. He then goes on to blame several factors that are beyond Apple’s control and repeatedly insists that its new products are actually succeeding so well that they’ve often been in short supply.
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None of that is true. But Cook acknowledges that Apple is also taking steps to improve its results. And each of those steps directly addresses what we’ve known all along: Apple’s newest iPhones are not selling as well as expected.
“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,” Mr. Cook notes. “This is not only great for the environment, it is great for the customer, as their existing phone acts as a subsidy for their new phone, and it is great for developers, as it can help grow our installed base.”
Yep, Tim. It’s a win-win.
Here’s what Mr. Cook blames for Apple’s unexpected poor quarter:
Timing of the iPhone launches. Where the iPhone X launched in Apple’s first fiscal quarter of 2018, the iPhone XS and XS Max shipped in Q4 2018, “placing the channel fill and early sales in that quarter” and skewing comparisons with the current quarter. “We knew this would create a difficult compare for Q1’19,” he writes.
Strong US dollar. The strength of the US dollar has reduced Apple’s revenue growth “by about 200 basis points as compared to the previous year.” Cook says that Apple expected this.
Too many new products. With Apple suddenly launching several new products in the quarter—including iPhones, Apple Watches, and Macs—it experienced “supply constraints” that would “gate” (slow) sales of “certain products” during the quarter. Again, Cook says Apple expected this. But he also claims that sales of the new Apple Watch, iPad Pro, AirPods, and MacBook Air were all “constrained” in the quarter as a result. I don’t recall any supply issues.
Economic weakness in some emerging markets. Cook acknowledges that China, in particular, is becoming a problem. “Most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac, and iPad,” he explains. The reason? “China’s economy began to slow in the second half of 2018.” Wow. And here we had thought it was competition from China-based technology firms.
Conversation 79 comments
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dontbe evil
<blockquote><em><a href="#390005">In reply to F4IL:</a></em></blockquote><p>or maybe you're holding it wrong</p>
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skane2600
<p>Obviously the number of products released and the timing of iPhone releases is entirely Apple's responsibility. Taken at his word, Cook expected these problems but stuck to the flawed plan anyway.</p>
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provision l-3
<blockquote><em><a href="#390051">In reply to skane2600:</a></em></blockquote><p>I would suggest reading Cook's actual letter rather than Paul's interpretive dance of it because this article is fairly inaccurate representation of what was said about both iPhone and other product releases. </p>
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skane2600
<blockquote><em><a href="#390052">In reply to provision l-3:</a></em></blockquote><p>From the Cook's letter: </p><p><br></p><p>"First, <em>we knew the different timing of our iPhone launches would affect our year-over-year compares</em>. 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. <em>We knew this would create a difficult compare for Q1’19,</em> and this played out broadly in line with our expectations.</p><p>.</p><p>.</p><p>Third, <em>we knew we had an unprecedented number of new products to ramp during the quarter</em> and predicted that supply constraints would gate our sales of certain products during Q1."</p><p><br></p><p>Are you sure <em>you </em>actually read Cook's letter?</p>
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provision l-3
<blockquote><em><a href="#390107">In reply to skane2600:</a></em></blockquote><p>I did read it. Cook points out that going into the quarter that they knew there were challenges they would have to account for in their guidance. He then lists them and points out that their initial guidance accurately accounted for the iPhone launch timing being different year over year and that they accurately accounted for the impact of launching the number of products at one time. The sentence you left out of that second quote says "Again, this also played out broadly in line with our expectations". </p><p><br></p><p>Cook actually doesn’t “blame” iPhone timing, the strong dollar or the number of new products for coming up short against the pervious guidance as Paul claims. He is pointing out that they actually were able successfully account for those things. He then says that a slow down in the Chinese economy and the lack of people upgrading iPhones in developed countries were the things they failed to account for. This quote is pretty unequivocal on what the actual cause was:</p><p><br></p><p>“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.” </p><p><br></p><p>I’m a little surprised that you opted to selectively quote what was said to make it fit your point. While I can say I don’t always agree with your comments I have always seen you as a person that makes and values honest discussion. </p><p><span style="background-color: rgb(255, 255, 255);"></span></p><p><span style="background-color: rgb(255, 255, 255);"></span></p><p><span style="background-color: rgb(255, 255, 255);"></span></p><p><span style="background-color: rgb(255, 255, 255);"></span></p>
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skane2600
<blockquote><em><a href="#390119">In reply to provision l-3:</a></em></blockquote><p>I left out that line because I didn't think it added any new information. What's the difference between knowing ahead of time and having expectations of same? </p><p><br></p><p>As far as the final quote is concerned, falling short of previous guidance wasn't the only issue I was addressing. They anticipated a problem but failed to alter their course to prevent it.</p><p><br></p><p>Thank you for the complement regarding some of my previous comments. I try but sometimes fall short of living up to it. </p>
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provision l-3
<blockquote><em><a href="#390107">In reply to skane2600:</a></em></blockquote><p>Also, I think there is plenty to be critical of. First and foremost I don't know why Apple was so late to provide updated guidance. I find it odd that the company came up almost 10% short of guidance and waited until after the quarter ended to announce it. I think Apple had a fiduciary responsibility to let investors know. If not legally then certainly ethically. </p><p><br></p><p>In addition I can see how the extent of Chinese slow down was somewhat of an unknown given the current pissing match with the U.S. but it seems prudent to advise on worst case but based on the comments in the last earnings call it sounded like Apple was still bullish on China. Similarly with upgrades, the reasons listed for the slow down in people upgrading were not new. So I think it is a bit of a surprise that they missed that as well. </p><p><br></p><p>So, I'm not trying to put a spin on this. I find it curious that when there are obvious things to pick apart that Paul chose to misrepresent things. </p>
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Thom77
<p>Hey Tim …</p><p>I can easily download Youtube on my $60 android phone in basically one click.</p><p>I can't on your $750 phone</p><p><br></p><p>I can install 3rd party apps on my $60 android phone.</p><p>I can't on your $750 phone</p><p><br></p><p>I can play NCAA 07 on my PSP emulator on my $150 Android tablet.</p><p>I can't on your $800 Ipad Pro.</p><p><br></p><p>I can drag and drop files easily onto both of my devices which ads up to $210</p><p>I can't on both of your devices that add up to $1550.</p><p><br></p><p>I can download an app over 150mb on my 4G on my $60 android phone</p><p>I can't on your $750 phone because you, Timmy, want to restrict how I use my own cellular service that I pay for separately.</p><p><br></p><p>And, as an added bonus … I can choose not to support your company when you, Timmy, want to boycott Georgia over bathroom policy while you go to Saudi Arabia and celebrate opening up a new store in a country that has horrible civil rights towards gay people and women.</p><p><br></p><p>You see Timmy … the reason I didn't buy your new Ipad Pro and Iphone, even though they are beautiful machines … isnt because of timing, economic weaknesses, or being overwhelmed with too many products to buy ..</p><p><br></p><p>Its because your company produces merchandise that is overpriced and less functional then another companies merchandise and so i choose to buy another companies merchandise .. and in addition, can do so without being lectured about how I am supposed to think by a rich CEO who virtue signals about his morality to distract me from the fact that he puts the $ above it when its convenient.</p>
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dontbe evil
<blockquote><em><a href="#390109">In reply to Thom77:</a></em></blockquote><p>but you don't have an overpriced device with a shiny bitten apple logo on it to show off, and also you're not blamed from your beloved company when something goes wrong, because it's never apple fault</p>
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dontbe evil
<blockquote><em><a href="#390160">In reply to nbplopes:</a></em></blockquote><p><br></p><p>it's never apple fault, always someone else fault, especially apple users fault</p>
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dontbe evil
<blockquote><em><a href="#390177">In reply to dontbe_evil:</a></em></blockquote><p>a big hug to butthurt apple fans that cannot face the truth</p>
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provision l-3
<blockquote><em><a href="#390175">In reply to John_Craig:</a></em></blockquote><p>"Scarily, his view was that if Apple were still focussed on hardware for profit by the end of the decade, they'd be no better off than Dell, Sony, HP or Lenovo. Just another hardware company, trying to make a living."</p><p><br></p><p>So if this was written in 2013 then 2019 is then end of the decade and it would be somewhat prudent to look at how Apple is against the diversified companies. In Q1 of 2019 they had what I think we all agree is a bad quarter. I mean, that is what drove the guidance adjustment. In that bad quarter Apple made 84 billion dollars. That is over 75% of what Microsoft made in all of their fiscal year 2018. It is over 100% of what IBM made in a year and 200% of what Oracle makes in a year. </p><p><br></p><p>Obviously the jury is still out on the 50 year mark but the end of decade prognostication isn't accurate at all. </p><p><br></p><p>Also, no disrespect to Microsoft, Oracle or IBM. I think they are all great companies. </p>
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dontbe evil
<p>bhuahauauahauah … must be apple users fault</p>
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wocowboy
Premium Member<p>Trump's endless trade war is killing markets and economies all over the world, with tariffs raising the price of goods in the US and the price or components used in the manufacture of products both overseas and in the US. It almost destroyed soybean farmers and the soybean market in the US, leaving crops rotting in the fields and raising the price of soybean products around the world for just one example. These trade factors are having a huge detrimental impact on the world economy and are part of the reason prices are rising on cellphones from every manufacturer, not just Apple. Other cellphone makers are also raising their prices, maybe not as much as Apple and Samsung, but they are raising prices and the trade war is part of the reason. Spread the blame around equally because there is plenty to go around. </p>
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provision l-3
<blockquote><em><a href="#390277">In reply to MikeGalos:</a></em></blockquote><p>Your assumption is incorrect. If you read the letter published by Cook you will see that he calls out the timing of the iPhone launch, strong dollar and the number of new products as risks that they were aware of and were able to accurately accounted for in their guidance. Paul's reporting on letter is simply inaccurate. </p><p><br></p><p>I do agree that the timing of the notification. I would assume Apple was well aware of the issues in China well before the quarter ended. </p>
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provision l-3
<blockquote><em><a href="#390505">In reply to MikeGalos:</a></em></blockquote><p>For the first point I disagree. I think in giving a run down of why the guidance was wrong it is prudent to explain how the guidance derived. </p><p><br></p><p>As for mentioning them when they gave guidance …… well, he did. </p><p><br></p><p><br></p>
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dontbe evil
<blockquote><em><a href="#390277">In reply to MikeGalos:</a></em></blockquote><p>+1 … butthurt apple fans obviously didn't appreciate your truth comment</p>
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dontbe evil
<blockquote><em><a href="#390735">In reply to nbplopes:</a></em></blockquote><p>try to visit this http://www.apple.com and don't forget to buy some ovepriced iDevice to help your beloved company</p>