US tech giant Apple has revised its financial guidance for the first quarter ending December 29th as it anticipates revenues $5 billion lower than expected.
Sales forecasts have now been dropped to $84 billion. It was previously expected the company would hit at least $89 billion.
Apple also anticipates a gross margin of around 38 per cent, and operating expenses of approximately $8.7 billion.
It’s the first time in over 15 years that Apple has revised its guidance to investors. Shares have fallen almost 10 per cent on the news.
Economic downturn
It was not so long ago Apple was more bullish on the quarter despite China headwinds. But a worsening Chinese market - which is experiencing an economic slowdown - and iPhone users picking up fewer upgrades has had a greater than expected impact on sales.
The problems in China have particularly hit Apple. While on the one hand Apple faces fierce competition from many rival smartphone makers offering powerful and cheaper handsets, the company said it “did not foresee the magnitude of the economic deceleration, particularly in Greater China”.
Apple CEO Tim Cook pointed the finger at the US Trump administration's trade war with China, claiming this has exacerbated the economic downturn.
“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,” said Cook.
“And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.”
He added: “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.”
Despite problems with hardware sales, Cook was keen to point out its services revenue hit a new record in China.
Globally, the App Store users spent over $1.5 billion on games and apps between Christmas Eve and New Year's Day. On January 1st alone, customers spent $322 million, a record for single-day sales.
Users are there, but aren't returning as often
The problem for Apple does not just come from China and emerging markets though, despite the fact that’s where much of its growth comes from.
In developed markets, iPhone upgrades were not as strong as expected. As smartphone hardware has improved over the years, there appears to be less enthusiasm for consumers to upgrade each year, particularly with top-end iPhone prices now stretching passed $1,000.
Apple may not be losing its customer base, but their willingness to purchase the latest hardware may be in decline.
That said, Apple expected to hit record revenue in countries such as the US, Canada, Germany, Italy, Spain, the Netherlands and South Korea.
