Apple is expecting revenue of approximately $84 billion and gross margin of 38 percent, which is quite a bit lower than the estimate provided in November when fourth quarter earnings were revealed.
At that time, Apple said its guidance included expected revenue of $89 to $93 billion and gross margin between 38 and 38.5 percent. From Cook's letter:
At $84 billion, Apple will see a year-over-year revenue drop in 2019 after pulling in $88.3 billion during the first fiscal quarter of 2018.
Cook offered up a number of explanations for the decline, some of which were mentioned during the fourth quarter earnings call.
Cook says that the timing of the iPhone XS, XS Max, and XR launch compared to the timing of the iPhone X launch last year will impact year-over-year comparisons, as will the strength of the U.S. dollar.
Apple Watch Series 4, iPad Pro, MacBook Air, and AirPods were constrained during the holiday season, leading to an inability to keep up with demand, as did economic weakness in emerging markets played a major role in the guidance change.
Cook says that customers taking advantage of "significantly reduced pricing for iPhone battery replacements" is also a factor that led to fewer upgrades in 2018. Starting in January 2018, Apple began offering battery replacements for $29 after a snafu that saw the company quietly introducing software that throttled the iPhone's performance without letting customers know. Apple faced multiple accusations that it deliberately slows down iPhones to encourage people to buy new devices, and while that may not be the case, offering cheaper battery replacements does appear to have impacted sales of new devices.
In China specifically, Apple saw a significant decline in sales, especially during the second half of 2018, which Cook says was in part due to rising trade tensions with the United States.
Cook says that Apple saw "fewer iPhone upgrades" than anticipated as a result of the aforementioned factors, requiring the company to lower its expected revenue estimates.
At the end of his letter, Cook highlights positive results from the December quarter, such as a growth in active devices, and increased revenue outside of the iPhone business in areas that include services and wearables. Apple, says Cook, is confident in its business and the "pipeline of future products and services."
Cook's full letter to investors can be read on Apple's Newsroom site.
Update: Apple CEO Tim Cook sat down for an exclusive interview with CNBC, where he further explained the guidance revision. He said the shortfall is over 100 percent from iPhone and primarily from Greater China due to a slowing economy during the second half of 2018.
Cook says trade tensions with the U.S. put additional pressure on the Chinese economy, leading to less traffic in stores and lower sales. Cook also blamed fewer carrier subsidies, a stronger dollar, and the $29 battery replacement program, suggesting that those factors led to fewer iPhone upgrades than expected. Going forward, Cook says Apple will focus "really deeply" on things it can control, boosting future sales through trade-in program marketing, monthly pricing options, and more focus on in-store services such as data transfer.
Article Link: Apple Lowers Revenue Guidance for Q1 2019 Citing 'Fewer iPhone Upgrades' Than Anticipated
