Apple shares fell more than 7% in extended trading on Wednesday after the company slashed quarterly revenue guidance for the first time in more than 15 years, citing weak iPhone sales in China.
For the first quarter, Apple is now expecting about $84 billion in revenue and a gross margin of about 38%, CEO Tim Cook said in a letter to investors. In November, it estimated revenue of $89 billion to $93 billion and a gross margin of between 38% and 38.5%.
Cook attributed most of the revenue shortfall to the downturn in China.
“If you look at our results, our shortfall is over 100 percent from iPhone and it’s primarily in greater China,” he told CNBC. “It’s clear that the economy began to slow there for the second half and what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy.”
The iPhone is Apple’s flagship product and China, the world’s largest smartphone market, represents nearly 20% of its sales. Cook said Apple still believes it has a “bright future” in China, where “our products enjoy a strong following among customers.”
But in the after-hour session Wednesday, Apple shares declined 7.5% to $146. The company has lost more than $200 billion in market value since peaking above $1 trillion in early October.
The reduced guidance “raises fresh questions about Apple’s prospects in China,” The Wall Street Journal said, noting that its share of the Chinese smartphone market contracted to 7.8% in the first three quarters of 2018 from a peak in 2015 of 12.5%.
China’s economy began to slow in the second half of 2018, with GDP growth during the September quarter the second lowest in the past 25 years.
“We believe the economic environment in China has been further impacted by rising trade tensions with the United States,” Cook said. Market data “has shown that the contraction in greater China’s smartphone market has been particularly sharp,” he added.
Cook said iPhone sales have also been hit fewer carrier subsidies, price increases based on the strength of the U.S. dollar, and cheaper battery replacements.
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