Apple lowers guidance for Q1 - your reactions?

apple

#1

Your reactions to Apple lowering guidance for Q1 revenue?
I think we are in for a very interesting year, as we observe how / whether Apple changes its product strategy in the emerging markets especially with regard to pricing.

Links
Apple - Letter from Tim Cook to Apple investors

CNBC interview with Tim Cook


#2

I was surprised. I will go on record as having been confident Apple would beat the negative rumors with strong Christmas sales.

I’m curious where they’ll end up vs the guidance. I think it is slightly low to guarantee they won’t go under the updated guidance as well as the original. I think this is priced in so I don’t think the stock would jump if this happens.


#3

Cook wrote that most of the decline resulted from far lower sales in China, and that their intelligence is that China’s smartphone market in general had a large contraction. So it’s unlikely that Chinese consumers are singling out Apple because of trade war tensions, but it’s very possible that Chinese consumer fears over trade war tensions have got them holding off their tech spending in general.

When the tide falls Apple gets hurt, but so does everyone else in the smartphone market. While other competitors have much cheaper phones that might appeal to Chinese consumers, the companies making those phones are making next to no profit on them anyway. And the stickiness of the Apple ecosystem, combined with the historical advantage in app/service sales means that smartphone competitors probably won’t win much even as Apple loses, and Apple’s losses are cushioned by revenues from services and app sales.

Not great news for Apple, but just because Apple isn’t getting the double-digit growth it’d hoped for doesn’t mean someone else is taking that profit from them.

This does show however that Apple’s fast move to diversify its revenue sources needs to continue, even if phones continue for now to represent large majority of its revenue.


#4

None. I am not a stockholder. I am also not worried at all about apple, if they loose 5-6 billions out of 89. I am also glad to see, however, that Cooks strategy of making already high-price devices even more overpriced fails. If he had an intention to compensate for failing sales numbers in saturated markets with astronomical prices, it is clearly not working. Which is a good thing for us.


#5

I am not surprised. And I honestly do not think that the unnecessary trade war or the economical slowdown in China are the only reasons to Apple’s slowdown.

I do not think that Apple needs to compete with low-cost devices price-wise. But to be honest, Apple’s product pricing strategy during the last 18 months could not go well in the long run, not only in emerging markets. The answer to slowing sales is not to increase prices and to increase them even more. Eventually, a product is just too expensive to justify buying it.

A few years ago, you could recommend buying Macs and iPhones even to non-Apple users coming from the Android or PC side without any hesitation. There was a Mac Mini costing about 500 Euro, there was a decent equipped Macbook Air costing 999 Euro, you could get an iPhone SE for 300 to 400 Euro. All of those devices came with a decent configuration and were priced competitively. They were entry points to higher priced products. Very good entry points indeed!

Today, a strange equipped Mac Mini will cost you about 800 Euro with a decent equipped model starting at more than 1,000 Euro, a current MacBook Air starts at 1,300 Euro. A new iPhone (a model of the current generation) will cost you 849 Euro. With those prices, you will have a tough time to attract new customers and replacing your “old” devices gets more and more expensive.

If you do not want a base model, you can add at least several hundred Euro to any of Apple’s products. If you want to have a Mac with a 2 TB SSD, you almost end up with a price of a small car (which is just ridiculous given the prices of SSD storage these days). Yes, I know that not everybody needs a 2 TB SSD. And I know that Apple’s SSDs and products are great and what not. But some of Apple’s pricing starts to feel more and more like extortion and there are decent and cheaper options on the market that could be used in Macs, too.

In the end, you have to deliver products that have a market and that are also available to “normal” customers. You do not need to deliver “cheap” products, but they need to be affordable. And by affordable, I do not mean selling old products as new at a “discounted” price (iPhone 7, iPhone 8, the “old” Macbook Air with the 5th generation Intel i5 processor and other outdated components). You have to sell “new” products at a reasonable price. And you have to show that you care for your products with regular updates (hello Mac Pro, hello iMac 5K and so on). There is nothing wrong about having high priced options on the high end. But there need to be well-equipped decent priced products in every category. The only category, I see Apple having a decent priced and decent equipped entry product right now that is current, is the iPad.

And if I take a look at product categories like the Macbook, Macbook Pro, Macbook Air, I wonder if Apple actually knows where to go. Try to decide what laptop to buy in the 1,300 Euro price range! It does not take much to be seriously confused about that lineup.

2019 and 2020 will be interesting years for Apple and for Tim Cook. The behemoth, Apple has become these days, needs some steering and a perceptible vision to lead the tech industry again…

And yes, I still love Apple and I get that my post is more negative than it should and probably needs to be… Sorry. :slight_smile:


#6

Really not worried about it. Sucks if you’re a major shareholder I guess, but this doesn’t affect Apple’s ability to deliver better products.


#7

Yes, absolutely. Tech pundits will pound the tables for the next few days talking about this is the beginning of the end for Apple, but I think in the long run we’ll see other companies taking bigger hits than Apple overall.


#8

Meh. Apple’s economic well being, shareholder games, etc., mean nothing to me. Most unlikely but worst case is they go out of business someday – nothing any of us can prevent or change on our own.


#9

My feelings exactly!


#10

I’ve been wondering about Apple’s new pricing since the iPhone X launch last year. So add me to the list of people who aren’t surprised.

I still consider the iPhone the best phone on the market, I gave my brother an XR for Christmas. But their least expensive model is more expensive than any base model iPhone in history.

Apple no longer publishes the number of iPhones sold and instead touts their services revenue. Why? Could it be they are already be at the upper limit of what they can charge for their base phones?


#11

This is my biggest fear - a week or two of everyone going full tabloid, acting as if a company that is “only” going to make 80 BILLION this year instead of 85 billion is going to the wall. Some of the podcasts I listen to and news sites I read are going to be unbearable :frowning:


#12

Low-price Chinese Android handset makers with razor-thin margins and smaller marketshare would actually lose a lot less and be less affected. And sales of cheap handsets might buoy some Chinese makers, but not by much since they don’t have related businesses in accessories, cloud and apps to increase revenue and margins. Win less, lose less.

Gruber blogged an especially insightful post about this last night, comparing Cook’s too-long, oddly apologetic email to what Steve Jobs wrote the last time Apple had to restate earnings, sixteen years ago:

Gruber suggests, “the takeaway should have been that China is crazy but the iPhone is still kicking the shit out of the entire rest of the handset industry and is only pulling further ahead.”

Apple’s earnings expectations for the quarter relied on China heavily for overall growth, which didn’t happen. Most of the markets that can afford iPhones are saturated, and Apple is doing well in much of the world, and Apple itself notes that “We also expect to set all-time revenue records in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands and Korea. And, while we saw challenges in some emerging markets, others set records, including Mexico, Poland, Malaysia and Vietnam.” And it’s a powerhouse in upgrading andits percentage of switchers from Android keeps increasing. Moreover, non-iPhone business grew by 18%.

But the possibility of the Chinese economy stumbling, or Chinese sales cratering in a worldwide recession, or consumer uncertainty due to trade tensions, or even Chinese consumer sentiment turning against Apple as a proxy for the US government – all caveats of which Apple was well aware, and there was only so much they could do in the face of the environment that hit them here.

If there weren’t trade war concerns inside China that market probably would not have contracted overall, as Cook says has happened (affecting all phonemakers to one extent or another). Remember, despite the revision, it will still be Apple’s second biggest quarter in the history of the company. Whether this was the high-water mark for the time being (a la skyrocketing iPad sales followed by a dive then slow gains over time), or not will have to be seen.

Luckily for Apple they revived and refreshed their Macs last year, and the sales spike in macOS hardware helped to soften the effect of the Chinese iPhone sales tumultuousness.


#13

Except that particular complaint is not what’s at issue. Sales are through the roof in US and Europe and elsewhere, and Apple made clear that this issues is very very specifically related to missed sales/growth that was expected in China.

Localytics said iPhone XR activations increased 88 percent, Apple’s greatest surge in Christmas iPhone adoptions during the past three years. “We discovered that Christmas shoppers were heavily focused on obtaining Apple products this year: iPads have become a mainstay of the holiday season and the iPhone XR’s momentum shows no sign of decreasing. In 2016 we found that iPads dominated the leaderboards for new device activations over the Christmas holiday, while in 2017 the Google Pixel 2, Pixel 2 XL, and the iPhone 8, 8 Plus, and X took the top five."

A U.S. study from Consumer Intelligence and Research Partners (CIRP) found that significantly more consumers switched from an Android device to an iPhone within 30 days of the XR’s launch than those who switched to the iPhone X from an Android device in its first month.


#14

Very good reply. All the points you made were well versed. At this point in time Apple appears to be caught in that “Black Hole” known as Wall Street.


#15

My reaction is that this will probably end up having very little to do with Apple (or iPhone pricing, etc) and everything to do with a (temporary) global economic slowdown in 2019.


#16

Q1 is the holiday quarter, this is their biggest quarter by far. The stock price has been going down for months now, so we shouldn’t be surprised.


#17

Value for money = satisfaction minus price.

Apple have pushed up prices so far that the increase in satisfaction from upgrading a phone or a laptop doesn’t match the cost.

I’m hoping the earnings warning is a wake up call.

Apple has lost the plot a bit and needs to deliver products that people value rather than forcing too many (high cost) changes too fast.

I like the ecosystem but I have held back on replacements/upgrades. I am sure I am not the only one. A couple of examples…

I picked up a new 6s for my daughter, it has Touch ID (so my finger will work as well as hers) a headphone jack (so no dongle for her to lose) and I can buy 2 for the cost of a current iPhone (if she breaks it).

On the Mac side of things… unpleasant keyboards with perceived high failure rates, expensive touchbars that no-one wants, dongle hell and killing the MagSafe… Result: a lot of people (including me) are ‘making do’ with the old machine.

I’m hoping the 2019 machines lose some of the cost that Apple has built in (without adding value) and consequently allow Apple to maintain margins while providing sufficient value for money for me to part with my cash.

Sadly, I suspect that I will be disappointed :frowning:


#18

This is mostly correct. The other factor is the availability of lower cost alternatives in China, mainly from their domestic manufacturer Huawei. Combine (1) a contracting economy over 2-3 quarters in China, (2) a soft “trade war” with the US, and (3) lower cost alternatives from a domestic manufacturer, and one should not be surprised by the hit Apple took.

Pro Tip: Read ALL articles on Apple’s business and economics written by tech bloggers with great skepticism. They usually know their stuff when it comes to devices and apps, but when they delve into business, legal, and economic matters, vast majority of the time they have absolutely no clue what they are talking about or spout stuff that is flat-out wrong.


#19

That horse is already dead. The Chinese economy is the main issue (with consumers turning against Trump proxies as a potential problem as well - we recently saw Chinese consumers boycott Canadian Goose in a similar fashion). According to data from the National Bureau of Statistics of China retail sales in China grew 8.1 percent in November, the slowest rate of growth in 15 years, and growth in exports plummeted to 5.4 percent in November, from 15.5 percent in October. The Chinese Academy of Social Sciences, a government-led think tank, recently cut its growth estimate for China’s economy from 6.5 percent this year to 6.3 percent. While that seems like a small difference, it signifies a big drop in consumer spending when spread out over the country’s 1.4 billion people.

Ford CEO Jim Hackett complained earlier this year that the Trump tax penalties on steel and aluminum were costing it $1 billion last year alone. That pain has been exacerbated by a slowdown in car sales in China: auto sales there fell 14 percent in November over the same month in 2017. And Tiffany’s shares fell 9.6 percent on Nov. 28 after the it released disappointing third-quarter sales that were hurt by weaker spending from Chinese tourists in the United States and Hong Kong. So… there’s a Chinese Economy problem primarily going on here; let’s not read into this particular Apple failure specifically in China as somehow relating to its worldwide pricing.


#20

Apple’s prices are too high, even for Apple. A few years ago you bought Apple because it was the best, and you were paying a premium for quality and futureproofing. Now it’s hard to justify the expense, particularly with competing products catching up in quality.

OTOH, like @bowline, I love Gruber’s take: “Jobs’s arrogance got him into trouble at times, but at other times it was his saving grace” – namely, when he had to deliver bad news to the market. Cook’s “genuine and inherent humility holds Apple back on days like today. Apple needed less ‘I’m sorry, let me explain’ and more ‘Fuck you, this is bullshit, let me explain’.”

But they do. Until now, investors were happy to give Cook a free hand, as they were with Jobs before him, because Apple was delivering returns for investors. If Apple fails to meet investor expectations, the investors are going to start requiring closer oversight. And when the money-guys start taking control of a company, that never ends well for the customer. Or for the company, in a few short years.

If Cook can’t right the ship financially and keep investors happy, Apple in the 2020s could start looking a lot like Apple in the 1990s pre-Jobs return.