What's Going On With Apple

05 January, 2019, 05:21 | Author: Corey Lynch
  • Nobody in China wants Apple's eye-wateringly priced iPhones, sighs CEO Tim Cook

Apple has slashed its Q1 revenue guidance to 84 billion US dollars, about 9 percent lower than the market's expected target of about 91.3 billion dollars.

Global financial markets felt the shockwaves as Apple shares logged their biggest intra-day percentage fall in six years, sending the company's stock market value to under $700 billion, well below its $1.1 trillion October peak.

Apple gave up 9.2 percent in early trading Thursday.

In recent weeks, Chinese media have reported stories of companies awarding stipends to employees who ditch their iPhones to buy Huawei, said Shen Dingli, a well-known global relations commentator in Shanghai.

"Don't forget this: Apple makes their product in China", he says. "Therefore, Apple's rare profit warning is a red flag for market watchers". The Apple brand is extremely strong - Interbrand, for example, names it the most valuable brand on the planet.

He is calling for them to move manufacturing to the USA, however.

Another question mark for Apple is its 5G strategy in China, where the USA firm is not expected to have a 5G-enabled phone until 2020, behind rivals like Huawei, Xiaomi Corp and Samsung Electronics. Companies such as General Motors, Caterpillar and Daimler have all said recently that trade tensions and slower growth in China are damaging their businesses.

After multinational companies relied heavily on China for years for growth, warning signs across different industries are beginning to crop up suggesting there are broad, ominous trends gathering force in the world's second largest economy. "That's what we're seeing now", said Jack Ablin, chief investment officer of Cresset Wealth Advisors.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China", Cook said on Wednesday. Cook's new figure for the relevant revenue is US$84 billion, whereas the revised gross margin is 38%.

The firm had warned investors in November that a strengthening dollar and economic weakness in some overseas markets would be likely to hurt sales in the last three months of the year.

In 2018, the Dow suffered its worst year since 2008. Increasingly high prices could have also played a role. According to market researchers with IDC, "worldwide smartphone shipments are expected to decline by 3% in 2018 before returning to low single-digit growth in 2019 and through 2022".

Traders braced for another dose of the turbulence that ruled equities all December after reduced guidance at Apple Inc. sent exchange-traded funds tracking major indexes falling. As of Thursday, Apple's share price was at $142, which is nearly 40 percent less than its $232 high from October. Microsoft shed 3.7 percent to $97.40. Makers of phone parts also fell. Still, the threat of from China against Apple due to Trump's trade war lingers in the air. They're supplying devices that compete on quality at much more affordable prices, and have set up huge local manufacturing operations to avoid tariffs and keep costs down.

Markets overseas also stumbled. In Asia, tech-related stocks suffered most. Hong Kong's Hang Seng rallied 1.2 percent to 25,356.22. The news comes as USA earnings season looms around the corner. Delta sank 7.6 percent. Both were large moves.

The dollar strengthened to 108.13 yen from 107.67 yen. Year-to-date, AAPL has declined -6.35%, versus a 0.99% rise in the benchmark S&P 500 index during the same period.

The Dow Jones Industrial Average fell 338 points, or 1.4 percent, to 23,014.



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