Apple opened 2019 with a warning of slower iPhone sales in China. Following a volatile December in the stock market, Apple’s warning on January 2,
Global Economic Slowdown
The news corresponded with Wall Street’s fears of a global economic slowdown, since Apple is one of the world’s most watched stocks by investors. The fact that such a major tech player could be affected by an international trade war is starting to sink in among investors. On the same day, investors were hit with a report that U.S. manufacturing activity suffered its biggest one-day decline since the Great Depression.
CEO Tim Cook explained that Apple did not foresee “the magnitude of the economic deceleration, particularly in Greater China.” Cook blamed most of the company’s unexpected revenue declines on slower sales in Greater China. He has pointed to the trade war initiated by the United States as a catalyst for tension between the two nations. Cook said the slowdown is occurring at the consumer level in China.
Apple No Longer the King of Stocks
The negative news contributed to a further decline in Apple’s stock price, closing at $142, as its once trillion dollar market cap has fallen below $675 billion, trailing Microsoft, Amazon and Google.
One of the key issues that should concern investors about Apple’s warnings is that market analysts may be too optimistic in their 2019 forecasts. They may have overlooked effects of America’s trade war and the fact that corporations are operating at record debt. Higher interest rates, a slowdown in home sales and other factors indicate an overall economic slowdown in growth is happening.
Apple’s problems aren’t just global, as some of its struggles with iPhone sales are due to high prices, which may have hurt demand. Evidence suggests that consumers are no longer flocking to buy smartphones over $700. Most of Apple’s decline for the quarter involves the iPhone, which accounts for 63% of the company’s revenue, whereas its other products have collectively grown 19% in revenue. But since the iPhone declined 15%, it brought the company’s total revenue down 5% for the quarter.
Smartphones as Market Barometers
Despite the sudden drop in Apple’s projections, smartphones are still the world’s top consumer electronics business. So it’s unlikely that Apple will rethink its iPhone business much, other than it tends to be more expensive than rival models. If the iPhone falters in sales performance, it could affect other Apple projects, such as the company’s interest in entering automotive technology.
China is Apple’s third largest market, while Apple had record quarterly revenues in Germany and South Korea. Although Apple’s global sales were flat in the third quarter, Chinese competitor Huawei surged in revenue 33% from the same period a year earlier.