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Apple angst

Last week saw a rare event – Apple announced that it was cutting its quarterly sales forecast with the company’s Chief Executive Tim Cook, in a letter to investors, saying that sales of the iPhone in China were slowing.

Apple lowered its forecast to $84 billion in revenue for its fiscal first quarter ending in December, 10 percent below analysts’ estimates of $91.5 billion.

This is the first time that Apple had issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007.

At the time or writing Apple’s shares had tumbled 7 percent and since becoming the world’s first trillion-dollar company last year, the company’s shares have stumbled and are now trading around 25 percent below that peak.

Suppliers have also taken a hit with shares in IQE, Sage, STMicroelectronics, ams and Dialog all falling – ams was down a whopping 20 percent.

The letter sent to shareholders by Cook has helped to reignite concerns about slowing global economic and weakening corporate growth.

In what some are seeing as a ‘shot across the bows’ of the Trump administration, Cook has suggested that demand in the Chinese economy has been dragged down not only by a slowing economy but by the ongoing uncertainty that continues to surround U.S.-China trade relations.

China’s economy is certainly struggling and the slowdown, seen at the end of last year, has certainly been a lot sharper than many expected and that has caught out both policy makers and companies alike.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Cook said in his letter to investors.

The US/Canadian spat with China over the arrest of Huawei’s CFO last year hasn’t helped either, with some Chinese consumers looking not to buy Apple products.

But could the blame for the slowdown in Apple sales be laid closer to home?

Apple sales in China have been struggling for some time and that can be attributed to the cost of iPhones which are now well above $1000. Are they worth that massive premium and is the company’s aggressive pricing strategy adding to its problems?

Consumers are also hanging on to their phones for longer – 3 years rather than 2 years – before replacing them and recent iterations of the iPhone have fallen short - why replace an expensive phone with a new version that’s not that different?

Both Apple and Samsung are faced with growing competition from domestic and far cheaper alternatives in the Chinese market. Samsung’s market share fell to 1 percent in the first quarter of 2018 versus 15 percent in 2013.

One week in and 2019 looks like being an interesting 12 months for the technology sector. Could the tectonic plates be moving?

Author
Neil Tyler

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