On 2 January, Apple’s CEO Tim Cook released a guidance letter to investors lowering the company’s revenue estimate for the first quarter of FY2019, which ended 29 December 2018.
The company lowered its revenue guidance to $84bn (£66.9bn) from its previous projection of between $89bn (£70.9bn) and $93bn (£74.1bn). Apple also lowered its projected gross margin for the quarter to 38%, down from between 38% and 38.5%.
Apple cited several factors for the lowered estimates, including lower-than-expected iPhone revenue and China’s weakening economy. While Apple stressed that China was the main source of the projected revenue decline, sales of iPhone upgrades in other countries were also weaker than expected.
Cook’s letter also stated that price increases due to the strength of the US dollar, fewer subsidies offered by carriers, and less expensive battery replacements for older iPhone models also contributed to weaker iPhone upgrades in the quarter.
In an interview with CNBC, Cook elaborated on China’s role in the revenue shortfall. “If you look at our results, our shortfall is over 100 percent from iPhone and it’s primarily in greater China,” he said. “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.”
Even though the company lowered its guidance for the quarter, Cook highlighted several areas of growth in his letter. Several other Apple divisions experienced year-over-year growth by almost 19%, and the company’s base of installed devices grew by about 100 million units during the past year. Apple has stated that its growing device install base will lead to increased revenue from its users as they subscribe to Apple Music and iCloud storage. Analysts believe that the company will also introduce new subscription products via its Apple TV and Apple News apps.
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