Apple warns of revenue hit from US-China trade war

Cornelia Mascio
Gennaio 12, 2019

In a letter to investors, Apple CEO Tim Cook revealed some of the reasons why the first-quarter earnings are weaker than expected ahead of its earnings call scheduled for January 29.

Back in late 2017, Apple confirmed that it was throttling iPhone performance.

A woman looks at the screen of her mobile phone in front of an Apple logo outside its store in Shanghai, China July 30, 2017. This year was no different, the rumors and rumblings of weak iPhone sales still came and we've all been waiting for Apple's reaction.

Fourth-quarter revenue is expected to be more around $84 billion.

Meng Wanzhou, who is also the daughter of the company's founder, Ren Zhengfei, was detained in Vancouver on December 1 on a USA extradition request linked to sanctions-breaking business dealings with Iran. It's also far short of the forecast Apple gave investors only two months ago, which saw revenue in the quarter coming in between $89 billion and $93 billion.

Cook told CNBC that Apple products have not been targeted by the Chinese government, though some consumers may have elected not to buy an iPhone or other Apple devices due to the firm being an American brand.

Apple finds itself in a tricky position in China, a key market for sales and where it manufactures the bulk of the iconic products it sells worldwide, after the high-profile arrest in Canada of the CFO of domestic rival Huawei Technologies Co Ltd.

Apple's stock plunged 7% to 146.40 dollars in extended trading.

The warning, which came after trading in NY closed on Wednesday, looked likely to rattle already-volatile stock markets when they reopen on Thursday - with stock index futures pointing to Wall Street falls.

"We estimate if China sales went to zero that would reduce iPhone units by -44m and approximately ~$20-$30 per share in Apple stock price", the note stated. But Cook specifically said he "would not put China in that category" of countries with troubled growth.

While President Donald Trump's trade war with China isn't helping Apple and other USA technology companies, Ives believes Apple miscalculated by continuing to roll out high-priced phones in China, creating an opening for rivals with less costly alternatives that still worked well.

China is not only the problem for Apple.

"We believe the economic environment in China has been further impacted by rising trade tensions with the United States". He said, "While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be".

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