Early this month Apple CEO Tim Cook gave us the bad news in broad strokes. On Tuesday, we’ll find out just how bad it was.
In a letter to investors, Cook revealed sales of new iPhone models would disappoint in the company’s fiscal first quarter, which ended on Dec. 29, with revenue missing Apple’s own forecasts by about 15 percent. He laid most of the blame on an economic slowdown, particularly in Greater China. “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad,” he wrote.
Cook also blamed a decrease in carrier subsidies, price increases in foreign markets caused by a strong US dollar and customers taking advantage of Apple’s $29 battery replacement offering, which lets consumers to squeeze more life out of their older iPhones. The company now sees sales of $84 billion, well below the range of $89 billion to $94 billion that it had forecast in November.
The earnings warning was Apple’s first in more than 15 years.
The weaker holiday season — a period when most of Apple’s iPhones are sold —that the industry as a whole, and Apple in particular, is grappling with consumer smartphone fatigue. Many people also pointed to the high price tags on Apple’s newest iPhones. The XS ranges from $999 to $1,349, depending on storage, and the XS Max tops out at $1,499 in the 512GB configuration. By comparison, the MacBook Air start at $849.
Apple didn’t respond to a request for comment. The company had raised a red flag in November, when it said it would stop disclosing how many units it sells each quarter.
On Tuesday, investors and analysts will get a more-detailed picture of what missed and why. More important, though, will be what Apple says during its conference call about the state of the second fiscal quarter, which ends March 31.
“The big question is how much iPhone channel inventory Apple built in Q1,” Toni Sacconaghi, an analyst at Bernstein, wrote in a note to investors last week. Sacconaghi encouraged investors to listen for commentary on replacement cycles for the iPhone, reasons for the downturn in China and softness in other markets for the iPhone. “Our contention [is] that China only appears to account for half of the iPhone’s shortfall in Q1,” he wrote.
UBS analyst, Timothy Arcuri raised similar concerns in his investors note, writing that he’ll be paying attention to what Apple says about iPhone inventory levels, how long the company expects to be affected by demand in China, potential price reductions and upgrade cycles.
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