Apple CEO Tim Cook issued a letter today, revising guidance for the company’s Q1 fiscal results. Per the letter, revenue has been shifted from an initial projection of between $89 billion and $93 billion to $84 billion. The note highlights a number of reasons for dropping the number, including, perhaps most notably, lower than expected results in emerging markets.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook says in the letter. “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.”
Apple has invested a lot of future growth in markets like China, and a series of factors have made for disappointing results. Among them a slowed economy and tensions with the U.S. spurred on by tariffs that many believe will spur on a full-fledged trade war. In March, Cook told the press that he took up the issue of U.S. China relations directly with Trump. China is not the only emerging market that has been an issue for Apple, however — India has also been a tough nut for the company to crack.
But that’s only one piece of the puzzle here. As Cook notes in the letter, there have been fewer iPhone upgrades than expected. The executive notes, however, that non-phone categories (including the Mac, Apple Watch and iPad) did manage to grow 19 percent, but the smartphone has long been a driving force in the company’s economic fortunes, so a blow to those sales can have a substantial impact on the company’s bottom line.
2018 marked a major down year for smartphone numbers. In February, Gartner recorded its first year-over-year decline since it began tracking those numbers. Not even the might iPhone is immune from the larger trends. Prices are going up, phone quality has improved and new features haven’t been enough to keep consumers to a shortened upgrade cycle. The industry at large is going through a reckoning as it grapples to determine the next major consumer electronics trend. Apple has continued to be a rare bright spot in a stagnant world of wearables, but the Watch alone isn’t enough to right that ship.
“While China may have played a big role in the revenue miss the reality is nearly all smartphone markets are seeing a lengthening in replacement cycles and we should expect this to be the new normal,” Ben Bajarin of Creative Strategies, tells TechCrunch. “While price is what is being mentioned, I believe there would have still been softer iPhone sales even if prices were not raised due to consumers being content with their current phones and not as interested in the premium features coming out in the latest models.”
The letter features an unusually dour tone from the chief executive, also placing some of the blame on supply chain constraints, shifting product release cycles and the strength of the U.S. dollar.
But Cook rightly notes that Apple has been through plenty of tough times before. “As we exit a challenging quarter, we are as confident as ever in the fundamental strength of our business. We manage Apple for the long term, and Apple has always used periods of adversity to re-examine our approach, to take advantage of our culture of flexibility, adaptability and creativity, and to emerge better as a result.”