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Apple Lowers Its Earnings Forecast For The First Quarter Of 2019, Blaming Everyone But Itself

China, exchange rates, and supply constraints are all to blame. It has nothing to do with skyrocketing prices.

Wednesday afternoon, Apple stock trading was briefly halted after Tim Cook issued a letter with revised guidance for the company’s first-quarter 2019 earnings estimates. The updated forecasts are as follows:

  • Approximately $84 billion in revenue
  • Approximately 38 percent gross profit margin
  • Approximately $8.7 billion in operating expenses
  • Other revenue/(expense) of roughly $550 million
  • Approximately 16.5% tax rate before discrete items

The majority of the numbers are not significantly different from the guidance issued by the company in November, but there is one significant change: revenue is expected to decrease by $5-9B from the previous estimate of $89-93B.

Why Apple’s revenue is anticipated to decrease

In his letter, Cook provides four explanations for the anticipated decline. First, the iPhone XS and XS Max were released in the fourth quarter of 2018, while the iPhone X was released in the first quarter of 2017. Second, the strong U.S. dollar resulted in a difficult exchange rate, which hampered international sales. Third, this quarter witnessed the introduction of numerous new products, some of which experienced supply constraints (Cook mentioned the Apple Watch Series 4 and iPad Pro specifically, as well as MacBook Air and AirPods). Lastly, “economic weakness in certain emerging markets” proved to be more severe than anticipated.

Additionally, these and other factors led to fewer iPhone upgrades than expected.

What transpired?

Since Apple is no longer disclosing iPhone unit sales figures, it is unlikely that we will be able to determine precisely what went wrong. In his letter, Cook states that a slowdown in China’s economy led to a significant decrease in upgrades there and that this is almost entirely responsible for the shortfall. “Lower-than-expected iPhone sales, primarily in Greater China, account for the entirety of our revenue shortfall relative to our guidance and a substantial portion of our year-over-year revenue decline.”

This may be true, but consumers have noticed that Apple products are significantly more expensive this year. Almost every Apple product introduced in 2018 has a significantly higher starting price than its predecessor. Analysts hypothesize that this has led to decreased unit sales, particularly for the iPhone.

Apple increased iPhone trade-in values during the holiday season and promoted trade-in prices on its homepage, both of which are extremely unusual actions. This may have been an attempt to boost U.S. upgrade numbers that were lower than anticipated. It’s also possible that iPhone sales in the United States were satisfactory, but Apple tried to increase sales to make up for a shortfall in China (which was unsuccessful).

We will never know definitively. Apple is not going to publicly acknowledge that its prices are too high. Regardless of the value, an Apple product may provide, the rising cost of entry is a barrier to entry for many, particularly in emerging technology markets such as China and India.

Developing a product line that is more resistant to these factors in the future will be necessary if Apple’s explanations for its unusually low sales are accurate. This means more new products at a variety of price points, including brand-new iPhones that start at less than $749 and new Mac laptops that drop below the $1,000 threshold.

Is this what Apple will learn from its falling stock price? Or will the company redouble its efforts to expand other aspects of its business, such as services and accessories? We won’t know for months, as Apple is not expected to release any major new products until at least late March.

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The above article was written by the BestTopReviewsOnline team, which consists of some of the most knowledgeable technical experts in the United States. Our team consists of highly regarded writers with vast experience in smartphones, computer components, technology apps, security, and photography, among other fields.

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