Apple Lowers Revenue Guidance for Q1 2019 Citing 'Fewer iPhone Upgrades' Than Anticipated

Apple LogoApple today published a letter from Apple CEO Tim Cook addressed to Apple investors announcing changes to the guidance for the first fiscal quarter of 2019.

Apple is expecting revenue of approximately $84 billion and gross margin of 38 percent, which is quite a bit lower than the estimate provided in November when fourth quarter earnings were revealed.

At that time, Apple said its guidance included expected revenue of $89 to $93 billion and gross margin between 38 and 38.5 percent. From Cook's letter:

Today we are revising our guidance for Apple's fiscal 2019 first quarter, which ended on December 29. We now expect the following:
- Revenue of approximately $84 billion
- Gross margin of approximately 38 percent
- Operating expenses of approximately $8.7 billion
- Other income/(expense) of approximately $550 million
- Tax rate of approximately 16.5 percent before discrete items

At $84 billion, Apple will see a year-over-year revenue drop in 2019 after pulling in $88.3 billion during the first fiscal quarter of 2018.

Cook offered up a number of explanations for the decline, some of which were mentioned during the fourth quarter earnings call.

Cook says that the timing of the iPhone XS, XS Max, and XR launch compared to the timing of the iPhone X launch last year will impact year-over-year comparisons, as will the strength of the U.S. dollar.

Apple Watch Series 4, iPad Pro, MacBook Air, and AirPods were constrained during the holiday season, leading to an inability to keep up with demand, as did economic weakness in emerging markets played a major role in the guidance change.

Cook says that customers taking advantage of "significantly reduced pricing for iPhone battery replacements" is also a factor that led to fewer upgrades in 2018. Starting in January 2018, Apple began offering battery replacements for $29 after a snafu that saw the company quietly introducing software that throttled the iPhone's performance without letting customers know. Apple faced multiple accusations that it deliberately slows down iPhones to encourage people to buy new devices, and while that may not be the case, offering cheaper battery replacements does appear to have impacted sales of new devices.

In China specifically, Apple saw a significant decline in sales, especially during the second half of 2018, which Cook says was in part due to rising trade tensions with the United States.

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 says that Apple saw "fewer iPhone upgrades" than anticipated as a result of the aforementioned factors, requiring the company to lower its expected revenue estimates.

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. In fact, categories outside of iPhone (Services, Mac, iPad, Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year.

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. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.

At the end of his letter, Cook highlights positive results from the December quarter, such as a growth in active devices, and increased revenue outside of the iPhone business in areas that include services and wearables. Apple, says Cook, is confident in its business and the "pipeline of future products and services."

vMost importantly, we are confident and excited about our pipeline of future products and services. Apple innovates like no other company on earth, and we are not taking our foot off the gas.

We can't change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results. One such initiative is making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone. This is not only great for the environment, it is great for the customer, as their existing phone acts as a subsidy for their new phone, and it is great for developers, as it can help grow our installed base.

This is one of a number of steps we are taking to respond. We can make these adjustments because Apple's strength is in our resilience, the talent and creativity of our team, and the deeply held passion for the work we do every day.

Expectations are high for Apple because they should be. We are committed to exceeding those expectations every day.

Cook's full letter to investors can be read on Apple's Newsroom site.

Update: Apple CEO Tim Cook sat down for an exclusive interview with CNBC, where he further explained the guidance revision. He said the shortfall is over 100 percent from iPhone and primarily from Greater China due to a slowing economy during the second half of 2018.

Cook says trade tensions with the U.S. put additional pressure on the Chinese economy, leading to less traffic in stores and lower sales. Cook also blamed fewer carrier subsidies, a stronger dollar, and the $29 battery replacement program, suggesting that those factors led to fewer iPhone upgrades than expected. Going forward, Cook says Apple will focus "really deeply" on things it can control, boosting future sales through trade-in program marketing, monthly pricing options, and more focus on in-store services such as data transfer.

Top Rated Comments

Enclavean Avatar
49 months ago
Tim gonna blame everything except for the high prices lol
Score: 148 Votes (Like | Disagree)
sinsin07 Avatar
49 months ago
Simple
Lower prices
$1500 iPhones
$1800 IPads
Not rocket science

Tim wanted to test what the market could bear.
Now the bear is bitting back.

Tim fell into his own Reality Distortion Field.

UPDATE:
55 billion dollars wiped out in 1 afternoon due to hubris.
Score: 127 Votes (Like | Disagree)
MTW Avatar
49 months ago
Good. Time for Tim to stop the grift. Price products appropriately. Customers first, not shareholders. A return to the days of a 30% 'Apple Tax' (as opposed to whatever eye-watering number it is at now) is long overdue.
Score: 109 Votes (Like | Disagree)
trifid Avatar
49 months ago
Steve Jobs predicted this:

they cared about making a lot of money… they got very greedy and instead of following the original trajectory of the original vision which was to make this thing an appliance and get this out there to as many people as possible, they went for profits, and they made outlandish profits for about 4 years, one of the most profitable companies in America for 4 years, and what that cost them was their future, because what they should have been doing was making rational profits…”

Starts at minute 38:00:

Score: 102 Votes (Like | Disagree)
Eriamjh1138@DAN Avatar
49 months ago
My iphone7 plus is going for three years instead of upgrading after 2 because price.

Also, it’s a damn nice phone.

Edit: Jet Black, btw. (Thanks for the likes!)
Score: 57 Votes (Like | Disagree)
mlrproducts Avatar
49 months ago
Let's see:

2007 - iPhone is $399 (after initial flub)
2019 - that would be $487 with inflation - where is my $499 flagship phone? (which honestly should still be $399 as tech gets cheaper, certainly storage is)
Score: 57 Votes (Like | Disagree)

Popular Stories

iphone 14 pro max vs 13 max 2

Camera Comparison: iPhone 14 Pro Max vs. iPhone 13 Pro Max

Thursday September 29, 2022 7:44 am PDT by
The iPhone 14 Pro and Pro Max introduce some major improvements in camera technology, adding a 48-megapixel lens and low-light improvements across all lenses with the new Photonic Engine. We've spent the last week working on an in-depth comparison that pits the new iPhone 14 Pro Max against the prior-generation iPhone 13 Pro Max to see just how much better the iPhone 14 Pro Max can be. Subscrib ...
tony blevins car

Apple Procurement VP Departs Company After Vulgar TikTok Comment

Thursday September 29, 2022 12:38 pm PDT by
Tony Blevins, Apple's vice president of procurement, is set to depart the company after he made a crude comment about his profession in a recent TikTok video, reports Bloomberg. Blevins was in a video by TikTok creator Daniel Mac, who was doing a series on the jobs of people he spotted with expensive cars. After seeing Blevins in an expensive Mercedes-Benz SLR McLaren, Mac asked Blevins what ...
Dark Sky App Featured

Dark Sky Removed From iOS App Store Ahead of Upcoming Shutdown

Wednesday September 28, 2022 4:27 pm PDT by
The Dark Sky weather app that's owned by Apple is no longer available for download in the U.S. App Store, suggesting that it has been removed ahead of schedule. Apple acquired Dark Sky back in March 2020 and has since incorporated elements of the app into the Weather app available on the iPhone (and soon, the iPad). Dark Sky remained available for purchase as a standalone weather app...
adaptive transparency airpods pro

iOS 16.1 Beta Brings Adaptive Transparency to Original AirPods Pro

Thursday September 29, 2022 1:08 pm PDT by
The third beta of iOS 16.1 that was released earlier this week expands the Adaptive Transparency feature introduced with the second-generation AirPods Pro to the original AirPods Pro. As noted on Reddit, first-generation AirPods Pro owners who also have the AirPods beta software will now see an "Adaptive Transparency" toggle in the AirPods section of the Settings app. The 5A304A beta...
tim cook malala

Tim Cook: Not Too Long From Now, You'll Wonder How You Led Your Life Without AR

Thursday September 29, 2022 7:26 am PDT by
Speaking at Università Degli Studi di Napoli Federico II in Naples, Italy, Apple CEO Tim Cook said that not too long from today, people will wonder how they led a life without augmented reality, stressing the "profound" impact it will have on the not so distant future. At the university, Cook was awarded an Honorary Degree in Innovation and International Management and also sat down for a...
iPhone 15 to Switch From Lightning to USB C in 2023 feature sans arrow

Kuo: iPhone 14 Pro Max Popularity Could Lead to More Differentiation Between iPhone 15 Pro and iPhone 15 Pro Max

Wednesday September 28, 2022 10:22 am PDT by
Apple has seen high demand for the 6.7-inch iPhone 14 Pro Max, which could lead the company to further differentiate the next-generation iPhone 15 Pro and Pro Max, according to Apple analyst Ming-Chi Kuo. Apple could add exclusive features to the iPhone 15 Pro Max in an effort to encourage more people to purchase the larger and more expensive device. Kuo last week said that Apple asked...
iOS 16 Wallpaper Spectrum Feature

Five Wallpaper Apps to Check Out for iOS 16's New Lock Screen Depth Effect

Thursday September 29, 2022 9:08 am PDT by
One of the biggest new features in iOS 16 is a completely redesigned iPhone Lock Screen. The new Lock Screen is entirely customizable, letting you change the colors and fonts, add widgets and new wallpapers, and more to make your iPhone uniquely yours. Of course, even before iOS 16, you could customize your Lock Screen with a wallpaper of your choice. iOS 16 takes the Lock Screen wallpaper...
apple watch ultra deuglify 1

Apple Watch Ultra User Mods Titanium Casing to 'Deuglify' Design

Tuesday September 27, 2022 8:05 am PDT by
An Apple Watch Ultra user has modified their new device's casing to add a brushed finish and remove the orange color of the Action Button in an effort to make it more visually appealing. The Apple Watch Ultra offers the first complete redesign of the Apple Watch since the product line's announcement in 2014, and while the design has been met with praise from many users, some have criticized...
mx mechanical keyboard logitech

Logitech Launches New 'Designed for Mac' Mice and Keyboards

Wednesday September 28, 2022 12:01 am PDT by
Logitech today announced the launch of several new mice and keyboards that have been developed for use with Apple's Macs, including Logitech's first mechanical keyboard that has been optimized for the Mac. The MX Mechanical Mini for Mac Keyboard has a keyboard layout designed for Macs, with tools to customize shortcuts with Logi Options+. The keyboard uses Tactile Quiet low-profile switches...
iphone 14 iphone 14 plus in hand feature

iPhone 14 Is Secretly Hiding a Beloved Mac Feature

Friday September 30, 2022 3:24 am PDT by
The iPhone 14 and iPhone 14 Pro models bring over a longstanding Mac feature, but the setting to enable it is off by default. The feature, which is actually a new accessibility option, allows the iPhone to play a startup chime like the Mac. When enabled, the sound comes alongside a new shutdown chime. The Mac has featured a startup chime since 1987's Macintosh II, and the iconic "bong"...