Apple in the middle of the Trade War
Apple has warned investors that its revenue over the crucial festive season will be lower than expected, blaming the US-China trade war for disappointing iPhone sales.
Shares in the technology giant fell seven per cent in after-hours trading following the surprise announcement from chief executive Tim Cook.
Mr Cook said the company expected revenue of about $84bn in the three months to 29 December, down from a previous forecast of $89bn to $93bn that had already disappointed investors.
He cited China as Apple‘s biggest weak spot, but also conceded that demand for the latest iPhone models was weaker than anticipated.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Mr Cook wrote in a letter published after markets closed on Wednesday.
Apple ordered to stop selling iPhones in China, company claims
He added: “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.”
President Donald Trump has raised new tensions between the US and China by imposing tariffs on more than $200bn in goods. The economy had already been slowing in China, where Apple also faces tougher competition from native smartphone manufacturers Huawei and Xiaomi.
Phil Schiller, Apple’s senior vice president of worldwide marketing
While Mr Cook blamed waning demand in China for “the vast majority of the year-over-year iPhone revenue decline,” he said device upgrades were also “not as strong as we thought they would be”.
He attributed this partly to “some customers taking advantage of significantly reduced pricing for iPhone battery replacements”.
Apple is also dealing with the fact that phone upgrade cycles are getting longer so people aren’t buying new phones as often. New generations of iPhones are so expensive that consumers are more likely to stick with their current phones, even if it means simply replacing a battery by “taking advantage of significantly reduced pricing for iPhone battery replacements.”
So while it may be true that Trump’s China policies are in fact doing damage to that country’s economy — and to Apple — Apple also needs a new blockbuster business if current iPhone purchasing trends continue.
Apple‘s stock plunged seven per cent to $146.40 in extended trading following the announcement. The shares had already fallen 32 per cent from their peak in early October, when investors still had high hopes for the new iPhone models.