Apple blames revenue slump on slowing Chinese economy as iPhone sales slow

An Apple store in China

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Apple Inc. plunged to its lowest price in a year-and-a-half after the company cut its revenue outlook for the first time in nearly two decades, citing weaker demand in China.

By early 2018, General Motors was selling a third more cars in China than in the U.S. Starbucks unveiled plans to open a new coffee shop in China every 15 hours on average.

After Apple's first revenue warning in almost 12 years, investors also dumped chipmakers and tech stocks and flocked to perceived safe havens like U.S. Treasuries and the Japanese yen.

But Apple said its revenue miss in China was not due to the production side, but rather the sales side, since Chinese consumers are not buying enough iPhones.

Apple also cited supply "constraints" for some products, including its latest Apple Watch and iPad Pro.

Apple had predicted sales revenue for the first quarter of 2019 to be within a range of $89 to $93 billion, and analysts were sitting closer to a $91 billion prediction.

Apple said it now expects revenue of around $84bn, down from an earlier estimate of between $89bn and $93bn.

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Apple's first profit warning since 2002 has clearly generated a significant amount of finger-pointing at the Cupertino giant's headquarters, so much so that in the letter to investors Apple may have said more than it had planned on saying.

Along with macroeconomic challenges, he wrote, "we believe there are other factors broadly impacting our iPhone performance". The Nasdaq, which has a high concentration of tech stocks, retreated 202.43 points, or 3 percent, to 6,463.50.

"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, U.S. dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements".

Additional major American brands - including Ford Motor Company and Tiffany - have also recently suffered sharp sales drops in China. And after several component makers in November forecast weaker-than-expected sales, some market watchers called the peak for iPhones in several key markets. But Cook has said that the country lacks the skilled labor needed to manufacture those products. "I want to get those companies to come back", he added.

The belt-tightening in the world's second-largest economy is bedeviling global industries, including autos and designer clothing, that count on China to drive sales growth. "They're definitely having difficulties in China but we've seen this movie before and they tend to have hard quarters and recover and come back from that". Concern about the pace of growth in China, the impact of the USA tariff war and the general state of technology valuations all got an airing in the reaction to Apple's warning.

One thing Cook didn't mention in his letter is Apple's declining market share in China and the rise of domestic rivals like Huawei and Oppo. Its stock fell 10 per cent Thursday, the worst drop in five years, wiping out about $75 billion in market value. He said, "Don't forget this, Apple makes their product in China, I told Tim Cook who is a friend of mine who I like a lot, make your product in the United States, build those lovely plants that go on for miles it seems".

For now, shares of Apple suppliers were taking the biggest hits.

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