Bleeding Apple foots the bill for Trump's trade war on China?

Fredrick Soto
January 11, 2019

Earlier this week, Apple took everyone by surprise with a revision to the Q1 2019 earnings guidance, explaining that it now expects to reach $84 billion in revenue, down from a maximum of $93 billion originally.

Wednesday's cut to the sales forecast marked the first time Apple has revised its guidance to investors in more than 15 years, prompting the share price plunge.

The company said most of its revenue shortfall to the guidance and more than 100% of its year-over-year worldwide revenue decline occurred in Greater China across the iPhone, Mac and iPad. "This turned out to have a significantly greater impact than it had projected".

Apple shares, which had been halted ahead of the announcement, skidded 7.7 percent in after-hours trade, dragging the company's market value below $700 billion.

The price gap is one reason Huawei surpassed Apple in smartphone sales from April through September a year ago to seize the number two spot behind industry leader Samsung, according to the research firm International Data Corp. The company's November decision to no longer disclose iPhone unit sales raised red flags with some shareholders, who questioned whether the company was seeking to hide unfavorable numbers.

Trump also seemed to blame Apple's revenue shortfall on the iPhone makers decision to manufacture their products in China. The company posted revenue of $88.3 billion for the 2017 holiday quarter. In an interview with CNBC, he also blamed lack of subsidies for telecoms and lower battery replacement price disincentivizing upgrades.

"Third, Apple had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate its sales of certain products during the first quarter".

With iPhone's production lines in China, Apple has been caught in between the world's two largest economies. Those factors include the staggered launch of the iPhone XS line compared to the more affordable iPhone XR and trade tension between the USA and China.

Shares of the iPhone maker cratered almost 8 percent in extended trading Wednesday - knocking some $50 billion off the market cap after the company took the unusual step of cutting its revenue guidance.

"And, while we saw challenges in some emerging markets, others set records, including Mexico, Poland, Malaysia and Vietnam", he said.

Despite these challenges, Cook said, "we believe that our business in China has a bright future".

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