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Apple stocks tumble after company cuts forecasts for key quarter

Apple stocks tumble after company cuts forecasts for key quarter

Apple cut its revenue forecasts for the key end of year holiday quarter late Wednesday, citing the unforeseen “magnitude” of the economic slowdown in China. US markets start 2019 with a whimper as Trump blames ‘glitch’ for 2018 losses Read more Trading in the company’s shares were temporarily halted as Tim Cook, Apple’s chief executive,…

Apple cut its revenue forecasts for the key end of year holiday quarter late Wednesday, citing the unforeseen “magnitude” of the economic slowdown in China.

Trading in the company’s shares were temporarily halted as Tim Cook, Apple’s chief executive, issued a letter to shareholders explaining the reason for the change. When the suspension on selling was lifted, Apple shares fell 7.45%, wiping $55bn off its value.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China. In fact, most of our revenue shortfall to our guidance, and over 100% of our year-over-year worldwide revenue decline, occurred in greater China across iPhone, Mac and iPad,” wrote Cook.

The statement is Apple’s first profit warning since 2002 and its first of the smartphone age. It is also one that will further rattle investors already worried about the slowing Chinese economy.

The unusual move came on a day when it was reported that factory activity in China contracted for the first time in 19 months in December. China’s economy has been pinched by the ongoing Sino-US trade war which is spilling over to other Asian economies. China is Apple’s third-largest market after the US and Europe.

“China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years,” wrote Cook.

“We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed. And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.”

Despite these challenges, Cook said: “We believe that our business in China has a bright future.”

However, the company’s woes in China have been exacerbated by a court decision that could potentially ban iPhone sales in the country. Chip maker Qualcomm won a preliminary injunction in December that would ban sales of older iPhones that it claims violated its patents. Apple is appealing the decision.

Apple said it now expects revenue of around $84bn, down from an earlier estimate of between $89bn and $93bn. Analysts had been expecting revenues of around $91bn, according to market analyst FactSet.

Apple endured a bumpy 2018. In August it became the first publicly traded company to be valued at $1tn. But it ended the year down close to 7% – its worst performance since the 2008 financial crisis. Apple is now the US’s third largest public company behind Microsoft and Amazon.

In November the company announced record sales and profits but iPhone sales were flat. Sales have so far failed to pick up despite Apple launching more iterations of the device and analysts have worried that the market has become saturated and cheaper rivals are taking market share.

Apple’s poor performance was echoed by its fellow Faang companies – Facebook, Apple, Amazon, Netflix and Google – which all performed poorly in 2018. Their collective stumble helped drag down US stock markets, which had been driven to new highs by their rise.

Slowing iPhone sales have also compounded fears that Apple’s record breaking run is coming to an end and China’s weakening economy worried investors that international markets would not pick up the slack. China is Apple’s third largest market after the US and Europe.

The company’s woes in China have been exacerbated by a court decision that could potentially ban iPhone sales in the country. Chip maker Qualcomm won a preliminary injunction in December that would ban sales of older iPhones that it claims violated its patents. Apple is appealing the decision.

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