A weaker than expected revenue forecast by Apple, coupled with data on poor manufacturing activity in the US has sparked wider fears of a global economic slowdown in Wall Street. But Apple also has its own strategic approach to blame.
Apple Computers gave a rare forecast for its revenues on Wednesday for the quarter ending December 2018 which is a significant drop from expectations. This is the first time such a forecast has been given since the launch of the iPhone in 2007. It forecasts revenues to reach US$ 84 billion for the quarter, way below analyst estimates of US$ 91.5 billion. Apple’s own forecast was US$ 89-93 billion earlier.
In a letter to investors, Tim Cook blamed the reduced forecast on fewer upgrades being made to iPhones and weak demand in China. Cook stated, “While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.”
In response to the announcement, Apple’s stock fell by 10% to US$ 142.19 – its worst trading session since 2013. Weak forecast by Apple Computers as well as unexpectedly poor data on US manufacturing activity led to a wider bloodbath in Wall Street on Thursday. Apple’s pessimistic views on China are being seen as a wider endorsement for bearish sentiments on the global economy.
According to Institute of Supply Management data, US manufacturing activity was at a two-year low, indicating the impact of trade tensions. Dow Jones Industrial Average was down by 2.8% to reach 22,686.22. S&P 500 dropped by 2.5% to 2,447.89 and Nasdaq Composite Index slid by 3% to 6,463.50.
Component makers for the iPhone had already begun complaining of subdued demand, with orders slowing down since March. But interestingly, Cook had mentioned India, Russia and Brazil as troubled markets in growth terms for Apple, but not included China in the list during an earnings call in November. However, Japanese machinery makers had been warning Apple of falling sales growth in China, last year.
US-China trade tensions have had a major impact on China’s growth, which is projected to drop below 6.5% in the fourth quarter. But it is also true that Apple has not made any pricing adjustments for its phones despite the economic environment in China and the strengthening US dollar has only made it worse.
With prices past the US$ 1,000 mark, Apple is at least three times as expensive compared to other smartphones that are crowding the market. Can Apple keep its premium sheen for long? Or is it headed towards becoming an overrated smartphone brand, the way IBM was to computers before it was lapped up by Lenovo?