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[webfact]

Apple cuts forecast, citing weak China sales amid trade tensions

By Stephen Nellis and Munsif Vengattil

 

FILE PHOTO: A man uses his phone to take pictures outside an Apple store in Beijing, China July 28, 2016. REUTERS/Thomas Peter

 

(Reuters) - Apple Inc <AAPL.O> on Wednesday took the rare step of cutting its quarterly sales forecast, with Chief Executive Tim Cook blaming slowing iPhone sales in China, whose economy has been dragged down by uncertainty around U.S.-China trade relations.

 

The news sent Apple shares tumbling in after-hours trade and triggered a broader selloff in the stock market.

 

The revenue cut for the just-ended quarter raises questions about whether Apple, the face of American business in many parts of the world, is being punished by Chinese officials or consumers in favor of local rivals such as Huawei Technology Cos Ltd, whose pricey smart phones compete with the iPhone and which has been under discussion by the Trump administration for a possible sales ban over suggestions that its telecommunications equipment could be used to spy on Americans.

 

Cook told CNBC that Apple products have not been targeted by the Chinese government, though some consumers may have elected not to buy an iPhone or other Apple device because it is an American company.

 

“The much larger issue is the slowing of the (Chinese) economy, and then the trade tension that has further pressured it,” Cook said.

Some analysts, however, questioned the impact of Apple's own actions, such as its unyielding pursuit of high selling prices for its products.

 

Apple on Wednesday lowered its forecast to $84 billion in revenue for its fiscal first quarter ended Dec. 29, below analysts' estimate of $91.5 billion, according to IBES data from Refinitiv. Apple originally forecast revenue of between $89 billion and $93 billion.

 

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Cook said in a letter to investors. "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."

 

Wednesday was the first time that Apple issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007.

 

Apple shares skidded 7.7 percent in after-hours trade, dragging the company's market value below $700 billion. In the broader market, the S&P 500 futures <EScv1> fell 1.5 percent. In the U.S. government bond market, a typical safe-haven, the yield on the benchmark 10- year, which moves inversely to the bond's price, sank to an 11-month low.

 

PRECURSORS TO A WARNING

Apple's move was not entirely a surprise. In November, the Cupertino, California-based company said it would quit disclosing unit sales data for iPhones and other hardware items, leading many analysts to worry that a drop in iPhone sales was coming. And after several component makers in November forecast weaker-than-expected sales, some market watchers called the peak for iPhones in several key markets.

 

In November, Cook cited slowing growth in emerging markets such as Brazil, India and Russia for a lower-than-anticipated sales estimates for the company's fiscal first quarter. But Cook specifically said he "would not put China in that category" of countries with troubled growth.

 

That all came before the damage to the Chinese economy from trade tensions with the United States and long-simmering structural issues became evident.

 

Apple is now the highest-profile multinational corporation to warn that the economic slowdown in China could hurt its business.

 

Automakers such as Ford Motor Co <F.N>, Hyundai Motor Co <005380.KS> and Nissan Motor Co <7201.T> all previously said they planned to cut production in the country.

 

But Apple has held firm on its premium pricing strategy in China despite the risk of a slower economy.

 

"The question for investors will be the extent to which Apple’s aggressive pricing has exacerbated this situation and what this means for the company’s longer-term pricing power within its iPhone franchise," James Cordwell, an analyst at Atlantic Equities, told Reuters.

 

In the latest fiscal year, ended Sept. 29, unit sales of the iPhone were essentially flat from the prior year, while iPhone revenue expanded 18 percent to $166.7 billion. That growth came entirely from higher prices.

 

Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel, said Cook's comments on the impact of the U.S. trade tensions with China "might be a dig at (U.S. President Donald) Trump, but mostly he may be using the trade turmoil as an excuse for some missteps they’ve made over the last year."

 

But some investors were heartened by Apple's plans on using its cash pile.

 

In his letter, Cook said Apple has $130 billion in net cash and that it intends to continue its efforts to reduce that cash balance to net zero, which the company has so far accomplished through dividend increases and share buybacks.

 

"We would anticipate the company increasing share buybacks on the weakness to return capital to shareholders at discount prices," said Trip Miller, managing partner at Apple shareholder Gullane Capital Partners.

 

(Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Additional reporting by Joe White in Detroit; Editing by Leslie Adler)

 

-- © Copyright Reuters 2019-01-03

[zydeco]

And right after the announcement with 20 minutes to go until close, the FAANGs went up into green. PPT at work. I really must wonder if the Fed is outright buying stocks to keep the bubble inflated.

[Jonnapat]

People are turning away from Apple because they are overpriced. 

[farcanell]

6 hours ago, webfact said:

though some consumers may have elected not to buy an iPhone or other Apple device because it is an American company.

And that, mr trump, is how you reduce a trade deficit... buy local.

????????????

[Scott]

Troll post removed.

 

[pegman]

10 hours ago, Jonnapat said:

People are turning away from Apple because they are overpriced. 

The greed at Apple is astounding. +>70% markups on some of their phones. I hope we see a crash in it's share price.

 

https://www.techwalls.com/production-costs-of-smartphones/

[Thailand J]

I bought Apple stocks at $93.8-$126.7. Sold at $191. It's $142 today.

[Cryingdick]

Cook also said the strong dollar was an issue. This is just a nice way of saying that Apple's prices were out of line. i never heard him say that previous past profits were due to a weaker dollar. 

 

The stock plunged because they tried to hide diminishing sales by not disclosing units sold of iPhones. However they don't offer the amount of services needed to become the new service company everybody keeps talking about.

 

They are trying but they are too late. I am a big Apple fan and shareholder but Cook seriously made some big mistakes this year. they thought everything was rosy and lost around $10 billion buying back their own stock.

 

The iPhone XS Max 512 GB goes for 57,900 Baht in Thailand which is $1,798 very strong dollars. Need anybody say more? i forgot to add the 3,788 ($117.63)Baht in tax. So $1,915 in Thailand.