Apple Warns of Quarterly Revenue Shortfall

Posted on January 2, 2019 by Paul Thurrott in Apple with 79 Comments

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.

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.

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