Tim Cook just issued a very curious warning: Apple is lowering its revenue guidance for the first quarter of 2019. In other words, Apple is not going to make as much money as it had previously anticipated, and it’s kind of China’s fault. How bad is the damage, you wonder? Apple now expects to earn just $84 billion (around £67 billion) in revenue for this quarter.
Now, £67 billion sounds like a lot of money, especially considering the fact that Apple expects its quarterly operating costs to come in at around £7 billion. But the revised figure is several billion shy of the £70 billion to £75 billion range Apple previously projected. The rare earnings warning was significant enough that Apple stock was halted in after-hours trading, and when trading resumed 20 minutes later, it was down by over seven percent. In an interview with CNBC, published just after his note to investors hit the web, Tim Cook laid down the blame.
“If you look at our results, our shortfall is over 100 percent from iPhone, and it’s primarily in greater China,” Cook said. “It’s clear that the economy began to slow there in the second half, and I believe the trade tensions between the United States and China put additional pressure on their economy.”
So according to Cook, it’s kind of China’s fault that Apple isn’t making quite as many shedloads of money as it expected, and it’s also kind of Trump’s fault. Cook went into more depth on this issue in his letter to investors, pointing out that China’s GDP slowed significantly in the second half of 2018, which may explain why Apple apparently didn’t sell as many iPhones in the region as it has in the past. But don’t worry, the company has a plan for its future, one that anticipates fewer people buying iPhones and Apple shifting its business to new areas of growth like services (think: Apple Music subscriptions and whatnot). Cook pointed out that non-iPhone categories “combined to grow almost 19 percent year-over-year.”
We should have seen this coming. After Apple took such drastic measures as to put new iPhone models on sale leading up to the holidays, it was clear that the company was staring down the dark throat of decline. Mind you, decline for Apple means making a handful fewer billion this quarter than expected, but still, this is a clear sign that Apple’s business model is shifting as the world stops buying so many iPhones. It’s also more evidence that Apple is failing to release exciting new hardware to pick up the slack. This is not to say that the rumoured Apple video streaming service won’t be neat. It just won’t be as neat as a mind-blowing new computer might be.
Cook seems like he’s aware of the perceived slowdown in innovation as much as he’s aware of the comparatively shitty iPhone sales. In his letter, the CEO said, “Apple innovates like no other company on earth, and we are not taking our foot off the gas.” Does this mean that Apple is inventing a new type of car? Almost definitely not. Cook didn’t exactly detail what Apple was going to do next in terms of new things, but he did say this:
We can’t change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results. One such initiative is making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone.
So Apple can’t bend the global economy to its will, but it will make it easier to trade in your old phone for a new one and make sure you don’t lose any of your contacts. Which is a weird interpretation of innovation, but hey, a nicer Apple Store experience sounds a heck of a lot better than an augmented reality headset. Cheaper, too.
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