Published: Sat, January 05, 2019
Money | By Wilma Wheeler

Apple shares tumble as firm blames sales slump on China slowdown

Apple shares tumble as firm blames sales slump on China slowdown

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.

Following a massive scandal over its practice of deliberately slowing down older iPhones, Apple reduced the price for its battery replacements, charging $29 instead of $79 in 2018.

Within just two months, China, the world's largest smartphone market, has turned from a growth driver to a weak spot for Apple.

Apple posted sales of $88.3 billion in the fiscal first quarter a year earlier, so the new forecast would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011.

Apple Inc.'s falloff in demand for iPhones in China shows the company's flagship product is hurt by its high price and the rise of cheaper, more comparable rival devices in the world's biggest market.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China".

Analysts see iPhone's high price point and lack of major updates as the major reasons for the Chinese market's lukewarm reaction to its new iPhone releases. In announcing the new forecast, Cook said the Chinese smartphone market is contracting and noted that foot traffic to Apple retail stores has been down in recent months.

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. The iPhone X, which debuted in 2017, was Apple's most expensive iPhone ever coming in at $999. iPhone prices continued to climb as the company debuted the XS and XS Max past year, with the former starting at $1,099. When the suspension on selling was lifted, Apple shares fell 7.45%. With Apple suddenly launching several new products in the quarter-including iPhones, Apple Watches, and Macs-it experienced "supply constraints" that would "gate" (slow) sales of "certain products" during the quarter. But Cook specifically said he "would not put China in that category" of countries with troubled growth. We believe the economic environment in China has been further impacted by rising trade tensions with the United States.

Automakers such as Ford Motor Co, Hyundai Motor Co and Nissan Motor Co 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.

In his letter to investors, Cook makes much of the expanding base of Apple users, which grew by 100 million, and which has driven a 19% increase in Apple's service revenue.

In the latest fiscal year, ended September 29, unit sales of the iPhone were essentially flat from the prior year, while iPhone revenue expanded 18 percent to $166.7 billion. Cook says that Apple expected this.

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