Stuart Breckenridge

External monologue.

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.