Apple Expect Revenue to Miss Guidance Due to Poor iPhone Sales
Tim Cook, in a 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
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.
The revenue shortfall is $5bn – $9bn less than the $89bn – $93bn guidance provided around 60 days ago. The iPhone makes up nearly 2/3 of Apple’s revenue, so this is a striking miss for their most important product.
Other factors that contribute to the anticipated miss:
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.
- Other emerging markets: Hello, India 🇮🇳. A market where growth hasn’t so much stalled as it hasn’t started. iPhone’s high pricing remains a problem in a market where the majority of smartphones are sold for less than $250.
- iPhone upgrades: I’m not convinced the iPhone Xs and Xs Max high prices contributed significantly to a smaller number of upgrades. More likely is that the iPhone X is good enough for the vast majority of users to keep it for one more year.