Home » Apple lays the blame on China for its shortfall

Apple lays the blame on China for its shortfall

Apple issued a revenue warning on January 2nd, informing investors that it’ll miss its projections for the last quarter by between $5 billion and $7 billion. It is big news because a) that’s a huge number and the media loves a story about a tech giant wobbling and b) the last time Apple had to issue a revenue warning was way back in 2002, when its big product was the iPod (which was still Mac-only) and a 10% shortfall was just $200 million in revenue. But the story’s a little more complicated than either Apple’s main explanation –– the economic downturn in China –– or the obvious reason critics will latch onto –– lack of innovation in the most recent iPhone models driving down sales.
There’s no question that the economic climate in China –– where the government reported its second lowest growth figures in 25 years –– coupled with President Trump’s wild-eyed desire to pursue a trade war has hit Apple’s iPhone sales in the country. It’s the one major market where Apple could expect to see significant growth after years of explosive expansion across the rest of the world. The number of people who actually want an iPhone is limited and the maturity of the market, coupled with more resilient hardware, means they’re replacing their devices less frequently. Apple has no desire to reduce prices –– despite the iPhone holding about 12% of the market, it accounted for 68% of smartphone profits last year –– so something has to give.
While the revenue warning will encourage hyperbolic commentators to talk about how Apple is serious trouble or declare the age of the iPhone ‘over’, we’re still talking about a company that expects to report $84 billion in revenue for the last quarter. But the upgrade cycles in the smartphone market aren’t going to return to the two-year, tick-tock that powered the insane year-on-year growth of the early iPhone years. Apple needs its next big product but then again so do all the other players in the market. While Apple has seen growth in its services business, they still only account for around 15% of revenue, meaning hardware is still where it needs to succeed.
A revenue warning from any of the other smartphone manufacturers wouldn’t be nearly as big news. Apple made iPhone launches and great fanfare about sales into media events for so long that the sharks will come circling when there’s even a hint of blood. In truth, missing its target like this is more like a paper cut than a significant wound. It needs to be less reliant on the iPhone and to develop new products that can catch the public’s imagination in the same way. But it would be foolish to imagine that the company that came back from the brink of disaster to develop the iMac, iPod, iPhone and iPad doesn’t have something else in the tank.

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