Apple CEO Tim Cook wrote a letter to investors on Wednesday (Jan. 2) warning of lower revenues for Q1 and disappointing sales of new iPhones and Apple Watches.
Apple’s stock halted in after-hours trading right before the news, and shares dropped about 7 percent when it restarted trading 20 minutes later.
Apple had previously projected $89 to $93 billion in revenue, but Cook lowered that number to $84 billion. Gross margin was also lowered, to 38 percent from between 38 and 38.5 percent, according to a report by CNBC.
The main culprits, Cook said, were a floundering economy in China and low revenue from the company’s new iPhone.
“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,” Cook said. “China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.”
Cook also said that fewer subsidies by carriers, increases in price based on a strong U.S. dollar and less expensive battery replacements all caused weaker iPhone upgrades.
The CEO also mentioned some growth in certain areas, despite the lowered expectations. Apple’s device install base went up by 100 million units in 2018, and he said that base can be used to get more revenue through its subscription services.
“We had sort of a collection of items going on. Some that are macroeconomic and some that are Apple-specific,” Cook said in a CNBC interview. “And we’re not going to sit around waiting for the macro to change. I hope that it does and I’m actually optimistic, but we are going to focus really deeply on the things we can control.”