Analysts worry about Apple’s “rapidly deteriorating” business in China
Apple shares sank 9 percent in early-morning trading on Thursday, a day after CEO Tim Cook warned that lagging iPhone sales, particularly in China, had forced the company to lower its quarterly revenue projections for the first time in more than a decade.
The morning swoon pushed Apple’s stock down to $143.23 per share — its lowest figure since April 2017.
In a rare move on Wednesday, Cook said Apple had lowered its expected Q1 revenue to $84 billion, which would mark a five percent decrease year-over-year; earlier forecasts had the company pegged to make between $89 billion and $93 billion during the quarter. This marked the first time in 16 years that Apple had lowered its revenue projection.
In a letter to shareholders, Cook said that the company did not “foresee the magnitude of the economic deceleration” in several key markets, including China, where the company made more than $50 billion in sales during its recent fiscal year.
“Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline,” Cook wrote.
China was a primary focus for Cook in his letter, with the chief executive pointing to “rising trade tensions with the United States,” as well as the country’s overall economic downturn during the second half of 2018.
“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 added. “And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.”
Cook also warned new iPhone upgrades were “not as strong” as Apple expected in several countries.
Cook’s sobering message not only rocked Wall Street but multiple international markets as well. And analysts naturally weighed in on Wednesday, with Wedbush analysts Daniel Ives and Strecker Backe writing in a note to clients the revenue miss was “jaw-dropping.” While Ives and Backe called the China downturn a “disaster” and lowered their price target from $275 to $200, they wrote that they’re still bullish on the company long-term, despite the potential “black eye” of missing iPhone sales by up to 30 million units in 2019.
Jefferies analyst Timothy O’Shea, in an investor note shared with TheWrap, said that he now expects Apple to sell 185 million iPhones in 2019, which would be the first time since 2015 it’s failed to sell 200 million iPhones. O’Shea added that while he’s optimistic about Apple’s Services and Wearables business, the company’s “rapidly deteriorating” presence in China forced him to lower his price target from $225 to $160 per share.