Apple’s share price was set to begin trading nearly 9 per cent down on Thursday after it cut its revenue expectations for the first time in 16 years, blaming poor iPhone sales in China.
Apple was down 8.8 per cent at $143.97 in pre-market trading in New York while tech and luxury stocks across the world fell heavily as investors fretted over the state of the Chinese market and the broader outlook for the global economy.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” said Tim Cook, Apple’s chief executive, on Wednesday, in a letter explaining why he was cutting the company’s revenue guidance for the fourth quarter. China accounts for around 15 per cent of Apple’s revenues.
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Robin Li, chief executive of Baidu, the Chinese search engine, also warned his employees on Wednesday that “winter is coming” as the Chinese economy weakens.
In a new year letter to staff, he said that shifts in the economy were “as cold and real as winter to every company”. In pre-market trading in New York, Baidu’s share price was down 1.6 per cent.
Only two months ago Apple said it expected revenue of $89bn-$93bn for the final three months of 2018, the most important period of its fiscal year. That would have represented revenue growth of as much as 5 per cent from the same period the year before.
The company now believes revenues will come in at approximately $84bn, pointing to a decline of 5 per cent instead.
In Asia, Foxconn, the main manufacturer of the iPhone, fell 1.7 per cent while smaller suppliers such as AAC Technologies and Sunny Optical dropped 5.4 per cent and 6.7 per cent. UK-based chipmaker Dialog Semiconductor, which is listed in Frankfurt, dived more than 8 per cent.
Samsung, a rival phonemaker, fell 3 per cent, while luxury companies Burberry and Kering, the owner of Gucci and Yves Saint Laurent, both slid around 3 per cent.
The scale of the disappointment for Apple was striking after the company had appeared to rebut some recent suggestions of weakening demand for the iPhone. The company has been dogged in recent weeks by reports of falling orders among its suppliers and questions about the strength of demand for the new, lower-priced iPhone XR.
It also said that “more than 100 per cent” of its revenue decline from the previous year could be attributed to lower Chinese demand for iPhones, Macs and iPads.
By pinning the blame mainly on economic factors, Mr Cook hit a nerve for investors still reeling from a big equity sell-off in December, which reflected growing doubts over the global economy. Stock markets had also begun 2019 on a negative note, after Chinese data on Wednesday showed manufacturing activity contracting for the first time since May 2017.
However, Apple also pointed to weaker than expected demand for the iPhone in developed countries, with fewer people than anticipated upgrading to new handsets. It blamed this shortfall on weaker economies, a decline in subsidies offered by mobile carriers, and its own recent subsidised battery replacement offer, which had led more people to hold on to their existing phones.
Mr Cook pointed to strength in other parts of Apple’s business as evidence that the company was not as dependent on short-term iPhone sales as it was. Revenue from other businesses rose 19 per cent in the quarter, he said, with services generating $10.8bn of revenue in the three months to December 29.
As a result, he said that Apple still expected to report record quarterly earnings per share for the quarter.
Even though the weakness was blamed in large part on a slowdown in China, Wall Street fretted that the update also signalled trouble for domestic US electronics retailers.
Apple products account for 15 to 20 per cent of sales at Best Buy, estimated UBS analyst Michael Lasser. Shares in Best Buy were down 2.3 per cent in after-hours trading on Wednesday.
