Apple is lowering its financial guidance, blaming an economic slowdown in China that has weakened sales of its iPhones, Macs and iPads.
The tech giant said revenue for its fiscal first quarter, which ended Dec. 29, will be about $84 billion, falling short of an average analyst estimate of $91.5 billion. Apple shares slid 7.2 percent in after-hours trading as investors digested the revenue warning, a rarity from a tech giant that until recently has been a Wall Street favorite.
Apple blamed China's slowing economy, which has been compounded by the impact of a growing trade war with the U.S. CEO Tim Cook wrote in a shareholder letter that the trade tensions with the U.S. "appeared to reach consumers" in China, driving down traffic to its retail stores there.
"We did not foresee the magnitude of the economic deceleration, particularly in Greater China," CEO Tim Cook said in a statement on Wednesday. "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."
The holiday quarter's revenue of $84 billion would represent a sales decline of almost 5 percent from a year ago.
Investors souring on Apple?
Even before the decline in after-hours trading, Apple's stock has shed about one-third of its value since reaching a peak in early October. 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.
"It's been a perfect storm of negativity for Apple," Wedbush analysts wrote in a recent report.
The slashed revenue forecast is a rarity for Apple, with the company issuing another earnings warning only once in the last 15 years, according to CNET.
China slowdown ahead
Economic growth in China slowed in 2018, and signs point to further deceleration this year. The country's Caixin index -- a key purchasing managers benchmark -- fell in November, which economists said shows the economy is continuing to deteriorate. But they said activity could pick up if the U.S. and China settle their disputes ahead of a March 2 deadline to impose steep new American tariffs on $200 billion in Chinese goods.
"We think that growth in the U.S. and Chinese economies will slow in 2019, and by more than investors are discounting, causing equity prices to fall in both cases," analysts with Capital Economics said in a note on Wednesday after the China purchasing data were released.
Said Cook in his Wednesday letter to shareholders: "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."
Not only China
Slowing sales in China isn't Apple's only problem -- results have been less than stellar in other markets as well.
"While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be," Cook noted.
Analysts have questioned whether consumers are reaching their limit in upgrading to the latest iPhones, noting that the device's price tags have continued to rise. A survey last year found that more customers were buying the cheaper iPhone 8 rather than the pricier iPhone X, perhaps signaling that people weren't willing to pay up for the latest bells and whistles.
Still, Cook pointed out that sales of several Apple products are growing, including its wearables business -- devices like the Apple Watch -- while the company's burgeoning services business continues to expand.
"Revenue outside of our iPhone business grew by almost 19 percent year-over-year, including all-time record revenue from Services, Wearables and Mac," he wrote. "Our non-iPhone businesses have less exposure to emerging markets, and the vast majority of Services revenue is related to the size of the installed base, not current period sales."