Tim Cook cites the magnitude of the unexpected economic slowdown in China in a shareholder speech explaining the change.
Apple cut its sales forecast at the end of its base year on Wednesday, citing the “magnitude” of China’s unexpected economic slowdown.
Shares in the company have been temporarily suspended as Tim Cook, Apple’s chief executive, issued a letter to shareholders explaining the reason for the change. When sales began again, Apple shares fell 7.45%, down $ 55bn (£ 44bn).
“While we expected some challenges in the major emerging markets, we did not expect the size of the economic slowdown, especially in Greater China,” he said. He pointed to a decline in sales of iPhones, Mac and iPad.
The news sparked a “sudden crash” in the currency markets as investors rushed to lower-risk assets, with the yen gaining against most major currencies in a few seconds.
US equity futures pointed to another bullish start on Wall Street, with Nasdaq E-Mini futures down 2.2% and S & P 500 E-mini futures shed 1.3%.
The broader MSCI Asia Pacific Index outside Japan dropped 0.4% after an early attempt to rebound. Japanese markets closed on holidays, but the Nikkei fell 1.9%.
Stocks in China and Hong Kong fell among gains and losses as investors awaited Beijing to launch new support measures for China’s chilled economy. China’s central bank said late on Wednesday it was adjusting the policy for more small firms facing problems in obtaining financing in the latest move to ease tension on the private sector, the main job-maker.
Apple’s statement was the first profit warning since 2002, the first in the era of smartphones. It will also increase concern for investors who are already worried about the slowdown of the Chinese economy.
The unusual move came on a day when China’s factory activity was reported to have shrunk for the first time in 19 months in December. China’s economy has been affected by the ongoing trade war with the United States, which is spreading to other Asian economies. China is the third largest Apple market after the United States and Europe.
“The Chinese economy started to slow down in the second half of 2018. The GDP growth reported by the government during the September quarter was the second lowest in the past 25 years,” Cook wrote.
“We believe that China’s economic environment has been further affected by increased trade tensions with the US With the climate of rising uncertainty on the financial markets, the effects have also reached consumers as traffic to retail stores and channel partners in China has declined as progress Quarter. “Market data showed that the downturn in China’s smart phone market was particularly sharp.”
Donald Trump and Chinese President Xi Jinping agreed to a 90-day temporary cease-fire in their bitter trade war last month, but so far there has been no long-term solution.
Despite these challenges, Cook said: “We believe that our business in China has a bright future.”
However, the company’s problems in the country have been exacerbated by a court decision that may ban iPhone sales there. Qualcomm, the chip maker, won a preliminary injunction in December that would ban the sale of old models it alleges violate its patents. Apple appeals against the decision.
Apple said it now expects sales revenue to reach $ 84 billion, from previous estimates of $ 89 billion to $ 93 billion. Analysts had expected revenues of about $ 91 billion, according to market analyst FactSet.
Apple suffered from rugged 2018. In August it was the world’s largest and became the first publicly traded company worth $ 1 trillion. But ended the year with a market capitalization of nearly 7 percent, its worst performance since the financial crisis in 2008. Apple is now the third largest public company behind Microsoft and Amazon.
Apple is still highly profitable and sits on $ 237 billion in cash. In November, the company reported record sales and profits, but iPhone sales were flat, raising investor fears that its glory days would come to an end. IPhone sales have so far failed to rise despite Apple’s release of more changes in the device, and analysts are concerned that the market is saturated and that cheaper competitors are getting a market share.
The price of the new iPhone can now exceed $ 1000 in the United States and £ 999 in the UK. Last year, Apple temporarily reduced the price of replacement batteries for older models and more customers chose this option instead of upgrading their phones.
The iPhone, launched in June 2007, was an exceptional success for Apple. More than 1 billion units were sold between 2007 and 2017. While sales of other devices and services such as iTunes and Apple Pay are increasing sharply, iPhone remains its most important product, accounting for 59% of its revenue in the previous quarter.
Apple’s peers Fang-Apple, Apple, Amazon, Netflix and Google echoed Apple’s poor performance, with a weak performance in 2018. The stumbling block helped lower US equity markets, which were driven to new highs by rising .
The slowdown in iPhone sales has also exacerbated concerns that Apple’s record track is nearing an end, and China’s weak economy worries investors that international markets will not pick up the recession.