Apple Lowers Revenue Guidance for Q1 2019 Citing 'Fewer iPhone Upgrades' Than Anticipated

[linkgx1]

I was listening to Ben Thompson on an old episode of the Talk Show and he said this. Basically every phone in China is just thing to run WeChat on. So, Apple is a status symbol but still just runs WeChat.

I think the earnings adjustment falls into this:

• Apple raised their prices to account for both longer upgrade cycles and increased component costs. They knew they would sell less phones, but the profit margins and revenue would still fall into line. Make more money on less devices sold. This is why they stopped reporting device sales, but also said at the time for investors to focus on revenue as the key metric and not devices sold.
• They expected growth in China to be the rising tide that would lift all sales. North America sales would be down, but China sales will account for that, so from Apple's standpoint this would be fine.
• Neither of these scenarios became true. Instead of a growth in China they saw a steep decline, and North American sales saw a steeper than expected decline. Nothing helped offset a loss so earnings took a skid.
• Pricing in America is obviously a factor, but also iPhones and the Ax chips are so powerful that they allow people to keep their devices longer. Some of the pricing is Apple's fault, but the elimination of carrier subsidies cannot be underestimated. Even though the cost of the iPhone was paid for in your contract price with the carrier, people just saw and iPhone as costing $300. Even without Apple raising prices, now the harsh reality of a $750 phone would defer sales. Raising the prices just makes it worse, especially with phones now approaching laptop prices. Most people don't need high performance phones. So upgrade cycles fall off to the thing becoming too slow, or you dropped it in the toilet.

You have a link to that podcast?

I was in Japan and noticed most people used either Line or Whats App. Seems like much of the asian markets don't use the built in messaging apps.

 

[dgdosen]

Neither of you obviously are corporate executives or major shareholders in any company. Apple's decrease in value, missed expectations, and their share collapse is MUCH more important than what you consider a large quarterly revenue number.

A better way to say it is that Apple is still valued as a $750B company. The market reacted swiftly to changes in their projections of future earnings (discounted cash flow) including current and future growth expectations.

 

[Mainsail]

Clearly, there are a couple of things happening. One is a global slow-down and trade issue with China. Two is Apple's pricing strategy. Apple needs an entry level consumer pricing strategy. They will never be a low cost manufacture, but they need a line-up of devices that pulls people into their ecosystem, preferably at a young age as students.

One bright spot for Apple is the 2018 iPad, and they need to build on this model. A spring release of an updated base iPad for $429 with Face ID, 10+ inch screen (same footprint of current iPad), 64 GB storage, USB-C, plus $100 bundled keyboard case option would be a big help. If Apple makes big strides with iOS 13 for iPad, then it might be possible to sell the entry level iPad as a true laptop alternative for average consumers.

Also, they need a new $499 iPhone SE 2 for the everyday consumer.

This would create a viable entry level consumer line-up. For about $1,000, a typical consumer could be fully engaged in the Apple ecosystem with a viable laptop alternative that meets most day to day needs plus a new phone.

iPhone SE2: $499
iPad 2019: $429 + $100 Keyboard Case

 

[ikramerica]

THIS!

Hey Cook stop price gouging for storage and maybe people would buy your ****.

I don’t know if the base phones or computers cost too much. But the gouging has to stop on storage and memory.

And make the memory on the macs upgradable. SSD too. I know it might make the machine thicker, or horror, bespoil the look with an access door, but it’s stopping many people from “going there.”

Maybe the slight increase in laptop thickness would allow room for a proper keyboard?

 

[Brammy]

You have a link to that podcast?

I was in Japan and noticed most people used either Line or Whats App. Seems like much of the asian markets don't use the built in messaging apps.

I think it was this one.

 

[timber]

You have a link to that podcast?

I was in Japan and noticed most people used either Line or Whats App. Seems like much of the asian markets don't use the built in messaging apps.

WhatsApp is also very popular in Europe. iMessage is somewhat irrelevant.

 

[halluxsinister]

Apple today published a letter from Apple CEO Tim Cook addressed to Apple investors announcing changes to the guidance for the first fiscal quarter of 2019.

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

Probably because going from an iPhone WITH a headphone jack, a proper bezel, a home button, and that is comfortable to hold and use to one lacking ALL those features and that costs SEVERAL TIMES AS MUCH...

... IS NOT AN UPGRADE.

maybe it's got something to do with THAT.

 

[Grolubao]

I believe the problem is not Tim Cook, the problem is TC not surrounding himself with visionaries that can come up with the next big thing.
CEOs are not suppose to come up with bright ideas, that’s what Product Managers do

 

[octoviaa]

@Naraxus I like your sign -)

 

[The-Real-Deal82]

Many of us that upgraded in the last couple of months didn’t see enough incentive to get 2018 iPhones. What can I say? When I can get the same experience on a slightly older iPhone and save £350-450, it makes little sense to buy a current device. If this has slightly impacted Apples profits then I’m hardly going to lose any sleep over that.

 

[Naraxus]

Nice try. Your assertion I'm blaming the situation on trade tariffs is simply a lie. I am saying that when trade tariffs kick in starting March things will get a lot worse. Pay attention to the word starting.

You may want to educate yourself and understand how consumer spending in China has massively declined starting in October of last year and progressively getting worse, which has greatly and adversely impacted iPhone sales in China. It takes just a bit of reading, assuming you really want to understand the underlying forces at play.

Backtrack & cover your rear end all you want to but you stated thus:

And just wait till the latest trade tariffs come into play in March..

Insinuating that the previous tariffs had an impact on Apple’s bottom line.

 

[Michael Goff]

Probably because going from an iPhone WITH a headphone jack, a proper bezel, a home button, and that is comfortable to hold and use to one lacking ALL those features and that costs SEVERAL TIMES AS MUCH...

... IS NOT AN UPGRADE.

maybe it's got something to do with THAT.

The headphone jack is on its way out on almost all phones. Sorry for your loss.

 

[apolloa]

It's clear Apple decided to maximise revenue streams to cushion any potential drop in revenue from a perceived lack of innovation. The iPhone, like all smartphones, has matured. The previous model of consumers upgrading every year, or even every two-years is no longer sustainable nor feasible.

Whether it be price or innovation, the conclusion is the same; people have little reason to buy new Apple products at the same rate.

Everyone understands this. Everyone but Apple.

Yeap, and Apple promised to resolve this by increasing it’s services offerings. Yet so far we’ve got a pretty useless AI system, a decent music streaming system, and a TV and film offering that’s still being treated as a hobby, in fact during Black Friday every single streaming device was on sale BAR Apples!

They truly believe endlessly hiking prices is the solution to all problems, like how governments think taxing everything will resolve theirs..
[doublepost=1546538757][/doublepost]

I agree with you, but please remember that Apple under Steve Jobs began doing this with the iPod, that this is not a Tim Cook era thing. Now, whether this started happening at the behest of Tim Cook, or Phill Schiller, or someone else, is not something any of us outside of Apple could possibly know.

Adding those items back in will not help at this point, unless it is accompanied by a revamped pricing structure for those products. The dirty little secret is that Apple has lowered prices, tacitly, at retail outlets like Best Buy and websites such as B&H with constant rotating sales on MacBook Pros, MacBooks, iPhones, iPads, et al. I have lost track of how many times Best Buy ran sales on the 13” and 15” MacBook Pros of between $150 - $400, depending on the model.

That being said, adding the power extension cord and a single USB-C to USB-A adapter back in the box would be a good start as there is a perception (and quite a bit of truth) that Apple is nickel and diming their customers.

Here in the UK Your damn lucky to find any of their devices discounted! And if they are it’s not by much. Apple definitely doesn’t discount a thing so if you wanted a custom Mac computer, you have to go to Apple and pay full price.

Also Steve Jobs saved Apple from bankruptcy, the iPod played a gingantic part in that. Apple is repeating history now by bringing out all these different models and devices and inflating prices. Jobs slashed its product ranges and concentrated on good products and although expensive, they weren’t massively out of reach for people.
But look at the iPad Pro, they change its design and use that as an excuse to massively inflate the price, not by a small amount but by a huge amount. And then they float how it’ll replace your computer whilst, pricing it the same as a computer.. yet it lacks the functionality of one.

 

[LovingTeddy]

LG just unveiled an 88 inch 8k oled tv. Think you can get that for $500? TV tech goes into the old tech category very fast. Almost within a year. But if you add oled there will be a price premium. Oled has been around since 1989, seems it should have pushed lcd out the door.
[doublepost=1546526080][/doublepost]
There is also tech, such as oled that hasn’t been any phone. iPhone 1 also debuted at $699? In 11 years having the max start at $999 with all of the tech seems like a bargain.

Do you really think OLES itself worth almost 50% price increase? I think not. There are plenty competitor offers much lower price point. Also, global flash memory price has been dropped significantly recently. There is no justification for 350 dollars more for 512GB storage compare with base 64GB. Plus looking at competitors, OnePlus starting to offer 6GB+128GB as bade configurations. I think Apple is way over the top for the pricing.

 

[bluecoast]

Reading by the data from China’s National Bureau of Statistic, Retails sales on November was up 8.2% while it is 0.5% lower than October, but it was not massive by all means. Retail sales are overall up by average of around 8%. There is no doubt consumer spending is slowing down, but I won’t call it massive by any means.

Even with slower consumer spending, Huawei and some other Chinese phones makers are able to post growth, so why Apple is struggling in China? Simply blame on China is not telling whole story to me.

Really agree. Although Jobs didn’t always make the most amazing decisions all the time (brushed metal UI in iTunes, Finder, safari etc) you could see that he took a great deal of pride in refreshing Apple’s product lines.

Sure, they were simpler back then but I don’t know if he’d had left the products of 3 years ago to be still on sale virtually unchanged as is common under Cook.

You’re right though - Apple got their just deserts in releasing iPhones at ever higher prices since 2014 and its finally bit them.

 

[dmorack]

oh stop it, it's called "being old", there is no good way to interact, just different way. You are posting this comment on a forum with people you never met, and arguing with them, that's pathetic too... so please be open minded and don't judge, just embrace the positive i hate those "it was better before" speech

That was my only post. At what point was I arguing? I was merely suggesting that the constant need to "feel connected" to no one in particular using the latest model smartphone is shallow compared to spending time with family and/or friends sitting next/across from you. Quite a few of my family and friends, of various ages, feel the same way and have decided that the latest smartphone and the even the smartphone itself just isn't that important anymore. That would lead to less sales.

What's pathetic is that you chose to not be open-minded to what I stated. It's called "being young".

Of course, you're free to continue to live your life through your smartphone. I never said or implied that you or anyone couldn't.

Anyway, you be you. Have a nice day.

 

[LovingTeddy]

Throttling? As opposed to your android phone just “dying”. The “throttling”(aka power management) at least gives you a choice.

Which Android phone dying? I have never had Android phone dying. Not even my Moto G2 for god sake.

 

[john123]

I wonder who is going to succeed Cook. His greed and hubris is out of control.

I’m still on an iPhone 6S, it’s a great device and I can afford to buy an XS if I wanted. But I’m not supporting this sort of blatant greed.

Time for Tim to Go. He’s a bean counter and a political ideologue, not a visionary of a Fortune 500 company.

The “greed” thing has been thoroughly debunked so many times with facts and figures.

Also, guess what? Most Fortune 500 execs are execution-types, not “visionaries.”
[doublepost=1546539450][/doublepost]

Neither of you obviously are corporate executives or major shareholders in any company. Apple's decrease in value, missed expectations, and their share collapse is MUCH more important than what you consider a large quarterly revenue number.

Yeah, well, I have been a senior exec for a global corporation, have an MBA from a top-3 program, and have invested professionally. And what you call a “collapse” is what I’ve simply been calling on here and elsewhere for over a year now an overdue correction. This guidance revision is a noisy blip.

This too shall pass. I wouldn’t go long on Apple at current valuations (although I did consider it last night), but I certainly wouldn’t short it either. The risk reward profiles on both sides are poor relative to other options.
[doublepost=1546539662][/doublepost]

Clearly, there are a couple of things happening. One is a global slow-down and trade issue with China. Two is Apple's pricing strategy. Apple needs an entry level consumer pricing strategy. They will never be a low cost manufacture, but they need a line-up of devices that pulls people into their ecosystem, preferably at a young age as students.

One bright spot for Apple is the 2018 iPad, and they need to build on this model. A spring release of an updated base iPad for $429 with Face ID, 10+ inch screen (same footprint of current iPad), 64 GB storage, USB-C, plus $100 bundled keyboard case option would be a big help. If Apple makes big strides with iOS 13 for iPad, then it might be possible to sell the entry level iPad as a true laptop alternative for average consumers.

Also, they need a new $499 iPhone SE 2 for the everyday consumer.

This would create a viable entry level consumer line-up. For about $1,000, a typical consumer could be fully engaged in the Apple ecosystem with a viable laptop alternative that meets most day to day needs plus a new phone.

iPhone SE2: $499
iPad 2019: $429 + $100 Keyboard Case

Disagree. The cannibalization would potentially be catastrophic.

 

[honglong1976]

You have a link to that podcast?

I was in Japan and noticed most people used either Line or Whats App. Seems like much of the asian markets don't use the built in messaging apps.

WeChat is huge in China. It’s just an app. I use it. My wife is Chinese. In China it is used to chat and every shop takes Wechat as a payment method by scanning a QR code (even a small outside store selling sweet corn for 10p).

 

[turbineseaplane]

Why would you assume the "Apple bashing" isn't been done by Apple fans who are growing tired of the Company's decisions?

My thoughts exactly...
The forum he seems to be looking for is "AppleCheerleaders.com"

True fans call it like it is - and right now and lately in general, lots of things aren't great.
[doublepost=1546541010][/doublepost]

I believe that Apple has anticipated this and has been holding back on the REAL enhancements to the existing product line for such a time as this. Real, honest-to-goodness upgrades to the mac, macbook, iPad, HomePod, etc. If that is true, expect to see some exciting things within the next 12-18 months. If not, as I said in the "what do you want to see from Apple in 2019"... Apple, you do you.

I'm just concerned that the leadership isn't there to have been this in front of things.

The way they have been caught off guard and/or ill prepared on the Mac side the last 5 years is discouraging to say the least.

They were wrong about the direction of GPU's as it related to the 2013 MacPro concept.
They seemed to think that Mac usage would be all but gone by now as everyone had moved to an iPad (or something)...
They were essentially going to be "done" with Mac Pro's and simply ship the iMac Pro until outrage and a course correction.
They seem to think the flaky ass butterfly keyboard is amazing.
They thought the TouchBar was a revolutionary and cool advancement.
They appear to have thought USB-C would be much further along than it is right now and instead we have laptop/dongle hell that persists and will well into 2019 and beyond.
They think nobody wants reasonably sized phones anymore. (not Mac I know)
Now they are somewhat merging the OS's and the first glance at it (Marzipan in Mojave) is atrocious.

The list goes on and on of very questionable strategic leadership, at least IMO.

 

[KPOM]

But that's kind of exactly my point, the car I pointed out shouldn't be desirable, its top speed is 90mph, it has a 1.5l 100bhp engine, nothing cutting edge - yet people are desperate to get hold of them. Processor speed is great and all that, but are Apple customers desperate for it? Did we even get told the specs of the original iPhone when it became the phenomena it was? My iPad 2 still has better battery life than my iPad air 2 for all the tech advancements, it's lower definition screen looks better, more natural and has a better coating that doesn't leave oily looking finger marks like the newer one. I was impressed with my iPad when I got it, it was a present I didn't even want but quickly grew to love it - the newer one seems less in many ways and I find that strange with 5 years extra development in it, I'm sure on paper it's far better though, I'm sure the specs are far better... In the real world that doesn't make it more desirable.

Everyone complaining about the lack of new processors on Macs the last 3 years seems to disagree. There have been almost no major processor advances over the past few years.

The iPad Pros are a noted improvement, and Apple still makes a $329 iPad that seems to be very popular. That may need to be the strategy for the iPhone until the next growth product emerges.

People look back at Steve Jobs, but the reality is that even he only came up with 2 really game-changing devices after his return. The iPod, which, though a flash in the pan, propelled Apple into the consumer world, and the iPhone, that capitalized on that and transformed the company. His first moves were defensive. He showed up the Mac line and pared a confusing lineup. He hired a supply chain guru. He made the necessary decision to switch to Intel. None of these were revolutionary. The iPad is essentially a derivative of the iPhone product.

If he could magically come back, I think a lot of his moves right now would be defensive. He would probably tighten the MacBook line a little. Maybe he’d have seen the threat in China sooner, but it isn’t as if he could have bought WeChat (local laws limit foreign ownership).

Interestingly, Watch does seem to be catching on, and was one of the more exciting announcements last fall. That product was the first developed in the post-Jobs era.
[doublepost=1546541219][/doublepost]

My thoughts exactly...
The forum he seems to be looking for is "AppleCheerleaders.com"

True fans call it like it is - and right now and lately in general, lots of things aren't great.
[doublepost=1546541010][/doublepost]

I'm just concerned that the leadership isn't there to have been this in front of things.

The way they have been caught off guard and/or ill prepared on the Mac side the last 5 years is discouraging to say the least.

They were wrong about the direction of GPU's as it related to the 2013 MacPro concept.
They seemed to think that Mac usage would be all but gone by now as everyone had moved to and iPad (or something)...
They were essentially going to be "done" with Mac Pro's and simply ship the iMac Pro until outrage and a course correction.
They seem to think the flaky ass butterfly keyboard is amazing.
They thought the TouchBar was a revolutionary and cool advancement.
They think nobody wants reasonably sized phones anymore. (not Mac I know)
Now they are somewhat merging the OS's and the first glance at it (Marzipan in Mojave) is atrocious.

The list goes on and on of very questionable strategic leadership, at least IMO.

To be fair, it was Steve Jobs who proclaimed the post-PC era. It is still coming, just not as quickly as he thought. That said, the 12” MacBook is the embodiment of Steve Jobs’s vision of the Mac. It is minimalist, has a closed case, and is instant on.

 

[The Game 161]

the apple watch has made it Impossible for me to not have an iPhone...it's that good.

 

[ikramerica]

Probably because going from an iPhone WITH a headphone jack, a proper bezel, a home button, and that is comfortable to hold and use to one lacking ALL those features and that costs SEVERAL TIMES AS MUCH...

... IS NOT AN UPGRADE.

maybe it's got something to do with THAT.

That’s how I see it too. Edge to edge is pretty. Pretty difficult to use. Don’t really care about the headphone jack, but home button and touchID are important to me.

 

[raghu8912]

iOS 12 & Battery replacement did dent the sales to some extent, few of my friends were tired of 6 & 6S crashing before iOS 12 was released they were ready to upgrade but once iOS 12 was installed they decided to postpone the upgrade.
Apple did the right thing by fixing iOS on older phones though.

 

[ikramerica]

Everyone complaining about the lack of new processors on Macs the last 3 years seems to disagree. There have been almost no major processor advances over the past few years.

The iPad Pros are a noted improvement, and Apple still makes a $329 iPad that seems to be very popular. That may need to be the strategy for the iPhone until the next growth product emerges.

People look back at Steve Jobs, but the reality is that even he only came up with 2 really game-changing devices after his return. The iPod, which, though a flash in the pan, propelled Apple into the consumer world, and the iPhone, that capitalized on that and transformed the company. His first moves were defensive. He showed up the Mac line and pared a confusing lineup. He hired a supply chain guru. He made the necessary decision to switch to Intel. None of these were revolutionary. The iPad is essentially a derivative of the iPhone product.

If he could magically come back, I think a lot of his moves right now would be defensive. He would probably tighten the MacBook line a little. Maybe he’d have seen the threat in China sooner, but it isn’t as if he could have bought WeChat (local laws limit foreign ownership).

Interestingly, Watch does seem to be catching on, and was one of the more exciting announcements last fall. That product was the first developed in the post-Jobs era.
[doublepost=1546541219][/doublepost]
To be fair, it was Steve Jobs who proclaimed the post-PC era. It is still coming, just not as quickly as he thought. That said, the 12” MacBook is the embodiment of Steve Jobs’s vision of the Mac. It is minimalist, has a closed case, and is instant on.

The iMac was a game changer.

The clamshell iBook as well.

Everyone copied the look and the i-naming scheme from there on.

And built-in WiFi at a time when it was rare. With a base station that could dial up AOL or whoever and then serve that connection to everyone connected.