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Jan. 2, 2019 / 9:46 PM GMT
By David Ingram
Apple issued a rare warning on Wednesday that its revenue is about to fall below expectations and pointed to the ongoing trade tensions between the U.S. and China as one of the major reasons.
CEO Tim Cook said in a public letter to investors that the slowing sales would show up in the company’s upcoming earnings report.
Cook cited unexpected “economic weakness in some emerging markets,” leading to fewer iPhone upgrades than executives expected.
Apple shares dropped about 7 percent after trading was temporarily halted ahead of the announcement.
Cook said in an interview with CNBC that the weakness was especially apparent in China, where traffic in retail stores and elsewhere had slowed with the broader Chinese economy.
Without naming President Donald Trump, Cook said that the administration’s trade battles with China had played a role.
“The trade tensions between the United States and China put additional pressure on their economy,” he told CNBC.
Cook’s letter said that Apple now expected revenue of $84 billion for the most recent quarter. That is down from guidance issued two months ago, when the company forecast revenue from $89 billion to $93 billion.
There are signals that Apple’s smartphone-related revenue is slowing elsewhere, the letter said: “In some developed markets, iPhone upgrades also were not as strong as we thought they would be.” That’s partly because consumers are getting fewer subsidies from carriers, the letter said.
Apple rode the success of the iPhone to become one of the world’s most valuable publicly traded companies. In August, it become the first public U.S. company to be valued at $1 trillion. While iPhone sales still account for the vast majority of the company’s revenue, it has begun to focus on other products and its services business — which includes the App Store — in search of growth. Apple has also signaled its intention to become a bigger part of the entertainment world, having signed deals with Oprah Winfrey, Steven Spielberg and Kevin Durant to make original content.
Cook said there were things the company could do to boost iPhone sales, such as cutting the cost of battery replacements, while the macroeconomic factors take their toll.
“We’re not going to sit around waiting for the macro to change,” he told CNBC. “I hope that it does, and I’m actually optimistic, but we’re going to focus really deeply on the things we can control.”
Any bets on how much the S&P will be down tomorrow as this Apple guidance gets priced in? Could be ugly.