Apple Lowers Guidance For Q1, Blames China For Shortfall

Apple has revised its guidance for Q1, 2019 ended December 29 and projected revenues of $84 billion instead of $93 billion it projected three months back. The $9 billion shortfall in its revenue is primarily because of its lacklusture iPhone sales.

In a letter to investors Apple CEO Tim Cook said the non-iPhone has seen more than expected growth during this quarter but iPhone sales across range has suffered drastically.

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

Of the revised revenue guidance Cook expects gross margin would be around 38% whereas operating expenses would hover around $8.7 billion.

Cook also attributed the low sales of iPhones to a strategic decision.

“We knew the different timing of our iPhone launches would affect our year-over-year compares. Our top models, iPhone XS and iPhone XS Max, shipped in Q4’18 — placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1’18, placing the channel fill and early sales in the December quarter,” Cook said.

“We knew this would create a difficult compare for Q1’19, and this played out broadly in line with our expectations,” he added.

Besides the China factor Apple also attributed the revenue shortfall to other macroeconomic factors like the strong value of the US dollar.

“Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained,” Cook wrote.

For the Q2, 2019 Cook makes a revenue projection of $130 billion.

“Our profitability and cash flow generation are strong, and we expect to exit the quarter with approximately $130 billion in net cash. As we have stated before, we plan to become net-cash neutral over time,” Cook adds.

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