Apple (AAPL) halted, lowers Q1 2019 revenue guidance to $84 billion
Apple Inc. shares are halted in after-hours trading. The company is lowering their revenue guidance for Q1 2019.
Apple Inc. CEO Tim Cook issued a letter to investors after the market close providing an update to shareholders. The company had previously provided revenue guidance of $89-93 billion for the Holiday quarter, but have slashed that down to $85 billion. This is very unusual for Apple, as they rarely miss their own guidance. One major point that Cook made in this letter is that weakness in emerging markets has affected sales.
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, 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." Clearly the ongoing trade war with China is affecting Apple's earnings visibility.
Here's the full letter:
To Apple investors:
Today we are revising our guidance for Apple’s fiscal 2019 first quarter, which ended on December 29. We now expect the following:
- Revenue of approximately $84 billion
- Gross margin of approximately 38 percent
- Operating expenses of approximately $8.7 billion
- Other income/(expense) of approximately $550 million
- Tax rate of approximately 16.5 percent before discrete items
We expect the number of shares used in computing diluted EPS to be approximately 4.77 billion.
Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance.
While it will be a number of weeks before we complete and report our final results, we wanted to get some preliminary information to you now. Our final results may differ somewhat from these preliminary estimates.
When we discussed our Q1 guidance with you about 60 days ago, we knew the first quarter would be impacted by both macroeconomic and Apple-specific factors. Based on our best estimates of how these would play out, we predicted that we would report slight revenue growth year-over-year for the quarter. As you may recall, we discussed four factors:
First, we knew the different timing of our iPhone launches would affect our year-over-year compares. 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. We knew this would create a difficult compare for Q1’19, and this played out broadly in line with our expectations.
Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.
Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained.
Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.
In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated.
These last two points have led us to reduce our revenue guidance. I’d like to go a bit deeper on both.
Emerging Market Challenges
While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, 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.
China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. 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. And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.
Despite these challenges, we believe that our business in China has a bright future. The iOS developer community in China is among the most innovative, creative and vibrant in the world. Our products enjoy a strong following among customers, with a very high level of engagement and satisfaction. Our results in China include a new record for Services revenue, and our installed base of devices grew over the last year. We are proud to participate in the Chinese marketplace.
iPhone
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. In fact, categories outside of iPhone (Services, Mac, iPad, Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year.
While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.
Many Positive Results in the December Quarter
While it’s disappointing to revise our guidance, our performance in many areas showed remarkable strength in spite of these challenges.
Our installed base of active devices hit a new all-time high—growing by more than 100 million units in 12 months. There are more Apple devices being used than ever before, and it’s a testament to the ongoing loyalty, satisfaction and engagement of our customers.
Also, as I mentioned earlier, revenue outside of our iPhone business grew by almost 19 percent year-over-year, including all-time record revenue from Services, Wearables and Mac. Our non-iPhone businesses have less exposure to emerging markets, and the vast majority of Services revenue is related to the size of the installed base, not current period sales.
Services generated over $10.8 billion in revenue during the quarter, growing to a new quarterly record in every geographic segment, and we are on track to achieve our goal of doubling the size of this business from 2016 to 2020.
Wearables grew by almost 50 percent year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers; launches of MacBook Air and Mac mini powered the Mac to year-over-year revenue growth and the launch of the new iPad Pro drove iPad to year-over-year double-digit revenue growth.
We also expect to set all-time revenue records in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands and Korea. And, while we saw challenges in some emerging markets, others set records, including Mexico, Poland, Malaysia and Vietnam.
Finally, we also expect to report a new all-time record for Apple’s earnings per share.
Looking Ahead
Our profitability and cash flow generation are strong, and we expect to exit the quarter with approximately $130 billion in net cash. As we have stated before, we plan to become net-cash neutral over time.
As we exit a challenging quarter, we are as confident as ever in the fundamental strength of our business. We manage Apple for the long term, and Apple has always used periods of adversity to re-examine our approach, to take advantage of our culture of flexibility, adaptability and creativity, and to emerge better as a result.
Most importantly, 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. 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.
This is one of a number of steps we are taking to respond. We can make these adjustments because Apple’s strength is in our resilience, the talent and creativity of our team, and the deeply held passion for the work we do every day.
Expectations are high for Apple because they should be. We are committed to exceeding those expectations every day.
That has always been the Apple way, and it always will be.
Tim
Developing...
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Asif Khan posted a new article, Apple (AAPL) halted, lowers Q1 2019 revenue guidance to $84 billion
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There are feature tradeoffs but benchmarks are identical between the XR and XS: https://www.macworld.com/article/3318198/iphone-ipad/iphone-xr-benchmarks.html
XR still has portrait mode with the single lens configuration. The telephoto lens on the X/XS/Plus models is lower quality than the standard. Its better than digital zoom ofc but its a small trade IMHO. The biggest tradeoff is the OLED display, but that's reasonable given that the XR is a cheaper device. Their LCDs look terrific, I think the XR and iPad Pro are among the best I've ever seen, so I don't think its that much of a downgrade. There was 3GB of RAM on the iPhone X and can't think of any issues I had that were related to multitasking, so practically speaking I don't think this is a tangible downgrade either.
Given the difference in price I'd expect lower performance out of the XR but that isn't what we got at all, plus it has longer battery life. I'd have had no problem buying the XR if it was an option when I was making my purchase, but that's clearly why Apple released the XR when they did.
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How did you price an XR to $1134.46? The highest I got it was $900 for a 256GB model: https://www.apple.com/shop/buy-iphone/iphone-xr/6.1-inch-display-256gb-black-verizon#00,13,31,42
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Ah. I do the monthly no-interest purchase that comes with AppleCare included. The X and XS are expensive but I also use them more than any device I own, so paying it off monthly takes the curse off of that.
If the XR had come out a month sooner I might have gotten that instead of the XS, its really nice, its faster than other flagships, and it sacrifices very little compared to the XS (force touch and OLED)
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Yea I was amazed at how much I like it. And with a properly installed tempered glass protector I can barely even tell it’s there.
It looked goofy at first because the leather is kinda bright orange in color but now it’s getting super dark and weathered which looks great with the black
edges of the phone.-
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Bro that’s barely patina’d!
http://chattypics.com/files/iPhoneUpload_d4dn6fivvw.jpg
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Recently Apple has started offering AppleCare as a monthly addon, where you pay a monthly price.
This is a much better deal since you have no obligation to pay it if you decide it isn't worth it, or sell the device. It charges through iTunes billing.
Essentially you are losing money by not doing the monthly version of AppleCare, unless you 100% know you will keep the device for 24 months anyway and don't want another monthly 'subscription' -
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iPhone 8 doesn't have a headphone jack either. I hated the iPhone 6/7/8 but love the X/XS. Replacing the home button with swipes is the best thing that's happened to the iPhone since the iPhone 5/SE.
Anyway, I guess they charge $50 less for the iPhone 8 because they can? Its performance its still faster than other non-Apple devices so the price isn't too bananas given that slower Android flagships cost more.
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In fact, 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."
The problem isn't that high end iPhone SKUs got more expensive just like each of the last few years. The problem is we're now in a trade war with China and iPhones of any price last longer and longer due to Apple's impressive hardware improvements. -
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That is great for them, and I am glad they found their market. There is definitely a story where some phone makers have found a way to make it work in certain markets (one of the reasons why Apple points out their weakness in China).
But if you only look at the US, this is a very different story, so basically Apple is getting hit by both weakness in China and lack of upgrade sales in the US.
http://arc-anglerfish-washpost-prod-washpost.s3.amazonaws.com/public/L7T654O4SNHD7AKCI2YGVELXNA.png-
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True, I will agree that the one area that hasn't suffered is cheaper phones. The main point I was making, is that people aren't upgrading as much, because they already have the cheapest phone available, which is already in their pocket.
There might be a way to mitigate it with cheaper phones, but that is not going to work for Apple who would have to put out a rebadged iPhone 8. They did pretty well with the iPhone SE, but that was also at a time when people were still not sure about larger screens.
I don't doubt there is room for a cheaper iPhone in their lineup, but it isn't going to get people to bite like crazy for an upgrade because it won't really be a big upgrade from what they have.
This is basically how it will go:
1. "I won't spend $1000 to upgrade from my iPhone 7"
2. Apple releases $499 iPhone XR mini with same chip as the iPhone 8 but a smaller screen than the XR.
3. "Pfft, at best a side-grade over what I have, I will just keep my current phone"
Repeat the same 3 steps over again until people hit the 36-48 month sweet spot and start to look into buying a new phone.
What people really want is for Apple to knock the price of all their phones down by $300-400 but that isn't going to happen because the losses would be even higher than what they are reporting today.
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A pre-announcement of earnings is material information.
Companies, regulators, and market makers halt trading so that the information can be disseminated to everyone. This prevents panic selling/buying and volatile moves.
Apple is one of the largest companies in the Dow, S&P 500, and QQQ.
A trading halt usually happens in anticipation of an announcement of news that will affect a stock’s price materially, whether it be positive or negative news.
Today it was clearly bad news.
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People don't upgrade their old phones as often as they used to, this has been hurting everyone who makes phones, and Apple is no different. In fact Apple might be worse off in some ways because they support older devices so much longer than their competitors and their phones are known to last longer.
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Exactly, your current phone works great, why would you upgrade?
That is the same thing more and more people are thinking:
http://arc-anglerfish-washpost-prod-washpost.s3.amazonaws.com/public/L7T654O4SNHD7AKCI2YGVELXNA.png-
Same situation with PCs. From the late 90s through the late 2000s most of us took for granted that we'd be doing rebuilds every 18-24 months. Since the i7 860/920 and especially the i7-2600 we saw PC lifespans increase dramatically. I went from 18-24 month upgrades to holding onto PCs for 4-6 years (or 8 years in the case of my prior Mac desktop) and it was more than powerful enough to run the most demanding games.
I expect that I'll be holding onto my iPhone XS for a while. It was easy to justify smartphone upgrades every two years but we crossed the line of diminishing returns with the 6S, despite ever accelerating performance increases since then. I think its why Apple is making such a push for augmented reality and more camera functionality, those are easy features to push on the mass market which are also demanding on hardware. Even then the A11 is just beastly and I can't imagine that the A12 and A12X are going to wither away anytime soon. The next big consumer feature to justify buying a flagship phone will probably be powerful machine learning on device, basically Siri that is as capable as competing cloud based assistants but done entirely on the phone itself. We're many years away from that happening.
Either way, its very similar to the upgrade trajectory we saw with PCs many years ago.
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My wife got me an iPhone 8 just yesterday, pretty much against my wishes. But the on/off button on my iPhone 5S stopped working the day before that (had to turn on assistive touch to compensate) and she was like, “Oh no, you have to get a new phone.” I said, “Why? This phone is fine for what I need and the assistive touch is tolerable for now.” But then she just shows up with a new one. Fortunately, it was at the end of my contract so I’m getting it almost for free (yeah, right).
But no headphone jack? I was not in the market for buying a new pair of headphones. Fortunately, Apple has a $10 adapter so I semi-dodged that bullet. Still have to get a new case though and pay some kind of activation fee.
Anyway, no way I’m paying $1K for a phone just to browse the web, play some games, send email/texts and take the occasional photo.
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Tim Cook letter to investors - https://www.apple.com/newsroom/2019/01/letter-from-tim-cook-to-apple-investors/
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yeah, totally oblivious to the fact THAT THEY ARE TO EXPENSIVE, when top earning high-rollers makes decisions 'for the masses' its going to end bad. Technically I know the newest phone are better (on paper) than the previous iterations, but its mostly invisible to the end user, which is their Achilles Heel. We as consumers have been honed that technical evolution will, over time, bring better technology to a lower price, its the Moore 'thesis' of modern times. That means the prices of their phones should be constant (in currency) but with more technical prowess and evolution it should, year by year, become more functional/faster etc. But no Apple hiked the prices into fantasy land, barring anyone not a real fan from jumping aboard, and to top it off they don't seem to understand that they have entered the long lonesome road into pricing themselves out of the mass-market. Yeah , some will say that's not their goal, and yeah it will take a long time before it will hurt them badly, this might be true, but in the end for the sustainable growth they require, mass-market appeal is inevitable, and that they will fail on the path the are on.
I mean I've used Ipad's since second gen, and its one of the most used devices I've ever own, and it works wonderfully, however the battery it getting pretty bad in my latests one so I looked into buying the new Ipad PRO, and fuck me, here in Sweden (inc. tax) it was about $1300 !! seriously, unless you earn filthy money that's insane for a device that just used for 'consuming' media, no matter the technical specification. My first Ipad was really, really expensive at $750 at the time, but now ? its in fantasy land. Safe to say, they priced themselves out of my life.
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Well yeah, I don't argue its been a great device and I've used it alot, I did not directly compare a second gen iPad with the new Pro, I said I've used iPad in different iterations <since> second gen (only skipped first year) however my latest is the one just before pro was released, Ipad2/air ? they really have confusing names, anyway, yeah at the time when I bought it is was very expensive (imho) and it was not an easy decision, yet now they are even more expensive, even when inflation is considered.
So yeah they are going into fairy land with their pricing and it will bite them. Its like they have become consumed by their hubris and think there's no limit to their unique 'value' and that high price automatically gives you a seal of quality/value. No matter what you think, technical evolution has been, almost without exception, about giving more performance/functionality for the same price in a year by year basis. My latest computer (4mo) is cheaper (in actual $) than my previous (3yo), yet much more capable, faster, more memory, bigger SSD etc. What makes Apple think they can gouge customers without any lash-back ?
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I would assume that consumer prices generally includes overhead such as R&D etc, but it is a bit hard for me personally to assess the effect of tariffs, and trade politics, so with that in consideration, what about this:
http://www.jasondunn.com/wp-content/uploads/2007/05/page-7-386-prices-768788.jpg
https://img.buzzfeed.com/buzzfeed-static/static/enhanced/terminal01/2011/3/7/13/enhanced-buzz-23385-1299522516-17.jpg
https://www.techeblog.com/best-buy-ad-from-1994-shows-1998-packard-bell-50mhz-computer-with-720mb-hard-drive/
In actual $ they costs as much a modern day computer, yet here we are, with several magnitudes difference in performance for the same sum of money, tell me how did we get here ?
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apple needs to branch out of phones eventually, seems like we hit a bit of a plateau on that front.
I want an apple watch that monitors everything in my body, blood flow, glucose, hydration, sweat, temperature. it will probably be pointless but nerds like me would love to pretend we are living in optimal fashion-
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Services is their highest growth area. While iPhone hardware contributes the majority to revenues, that’s because they have the highest sales volume and highest margins in Apple’s product lineup. Their growth, and it’s been this way for several quarters now, is in their services category which includes iCloud, music and apps.
Another thing people are missing from apple’s revised guidance is that margins are down only 0.5%. This tells us that the $1000 iPhones increased in retail price step in step with their increased build of materials cost. Contrary to popular opinion, the iPhones prices didnt go up arbitrarily. -
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I think it's complete common sense why they are in this position. They status quo'd their last years products against a market that flipped the fuck out the previous year against those changes. They bring absolutely nothing new to the table besides speed increases.
Steve Jobs saw the corporate idiocy when it came to incremental upgrades, he still did it due to Moore's law but he tried to push a new global secure market with every major hardware upgrade. That created customer loyalty and investor money dump retardation.
Meanwhile stupid ass upper level salesman who have been snorting and buttchuggin the Apple profit wave are wondering how this could have happened.
Literally none of this is hard, a complete idiot could lead apple to rising profits year after year if they weren't so busy modifying and fetishing their fucking spreadsheets.
Everything it takes to make Apple one of the best companies for the next 40+ years is on Youtube https://youtu.be/_1rXqD6M614 (and every Steve Jobs clip/speach) but like in EVERY publicly traded company from the 60s on til now it is run by the most inept idea-less moron with even dumber fuck head board members. -
It’s not the prices, it’s not the longevity (we’ve had that for years already), it’s not headphone jacks (lol).
Nobody besides Samsung competes with Apple at the high end in western markets, and Samsung isn’t exactly lighting the world on fire.
Besides the trade and economy stuff, I think it’s just that cheaper Chinese phones have just gotten really good.-
It’s not the prices.... cheaper Chinese phones
so then it is about the price ? I can by absolute certainty say that among my friends almost all (there are of course a few that don't like apple for 'reasons' ) would buy an iPhone if it competed in price compared to high-end android phones (and I'm not referring to Samsung they also seem to be in a rut, but more One+, Huwaei, an others) . Hell I love my One+6 but would easily swap for a iPhoneX if it was anywhere close in price. And I have several friends (many not technically inclined) that used to have iPhones since day oone, that just threw their hand in the air when +1000$ prices for a new fucking phone came up (aka the X-effect), now many of them have Android phones instead.
So yeah in the end it really is about price, apple, even though their walled in garden, have a very high usability, yet when it comes with a price tag of selling once kidneys, you have to get your priorities right.
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well they seem to show that they do *not* want to go after highest quantity of devices sold, yet in the end its inevitable as continues growth *requires* it, unless they magically convince everyone (of current consumer base) to swap phones every year or even more often, they need to get new customers in for growth.
So I would say that they indeed are focusing on profitability (in the near term) yet I think that does not automatically correlate to profitability long the long run. There have been already a few turn-overs in technology where companies grew bigger and complacent, gouging prices living on the seal of quality or yesteryears, then bam, some new technology/invention/manufacturing/etc comes along and turn everything around.
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I know that Apple has said the repair business hurt sales. But it amazes me / doesn't amaze me at all that they don't realize their price increase has driven people to keep their phones longer and repair them. (Of course if they realized that they never would have increased the price so there is the doesn't amaze me part).
If they lowered their low end phone price back down $200 and their highest end phone down $400 (and scaled in between) I bet their volume would pick up and it would more than offset the losses in revenue from the cheaper phones. -
I just dont think people care about phones the way the used to. Ther average user wants a decent battery life, good camera, enough storage space and the ability to text, youtube and facebook. Beyond the people who have a real interest in the subject, no one is interested anymore, phones are just something you have the same way you have a fridge or a washing machine. You dont want a crap one that will cause you headaches, but you're not interested in upgrading until you need to.