Apple cuts outlook, CEO Tim Cook blames China and iPhone sales

Apple shares dropped over 9 percent on Thursday after the iPhone maker warned that quarterly revenue for the crucial holiday sales season would be lower than it originally anticipated.

Ticker Security Last Change Change %
AAPL APPLE INC. 165.00 -2.04 -1.22%
I:COMP NASDAQ COMPOSITE INDEX 15528.931509 +246.92 +1.62%
I:DJI DOW JONES AVERAGES 38434.32 +447.92 +1.18%

It is the tech giant's first earnings warning since 2002.

The Dow member is infecting the broader market and is on pace to slip to the world's fourth-largest company with a market value just under $700 billion. The last time Apple was in this territory  was March 2010, according to the Dow Jones Market Data Group. Amazon and Microsoft have made strides against Apple in recent weeks.

Ticker Security Last Change Change %
AMZN AMAZON.COM INC. 174.63 -4.59 -2.56%
MSFT MICROSOFT CORP. 399.12 -5.15 -1.27%

Apple CEO Tim Cook delivered the bad news to investors in a letter saying the company now expects first-quarter revenue of approximately $84 billion, down from previous guidance of between $89 billion and $93 billion. Cook attributed the downtick to various factors, but said “economic deceleration” in emerging markets, especially China, was largely to blame.

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

Cook noted China’s economy “began to slow” in the second half of 2018, as rising trade tensions with the Trump administration exacerbated existing difficulties. The Apple CEO also cited a later-than-typical release of new iPhone models, a strong U.S. dollar and product supply constraints as factors in the company’s revised guidance.

Apple expects to end the first-quarter with about $130 billion in net cash and reiterated its goal of becoming net-cash neutral in coming quarters.

“We can’t change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results,” Cook added.

Apple has contended with slowing demand for the iPhone, the flagship product that has acted as its primary revenue driver in recent years. The company drew scrutiny and a negative market reaction last November when it disclosed that it would no longer publish the number of iPhones and other products it sells each quarter – a metric long considered a crucial bellwether for the overall health of Apple’s business. 

Apple shares lost over 8 percent in 2018.