Apple issues profit warning as iPhone/iPad sales fail to hit targets

Pedestrians walk past an Apple Inc. store in San Francisco California U.S. on Thursday

"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", Cook wrote.

Following a massive scandal over its practice of deliberately slowing down older iPhones, Apple reduced the price for its battery replacements, charging $29 instead of $79 in 2018. The reason? "China's economy began to slow in the second half of 2018." Wow.

Wall Street analysts, who had been peppering Apple's stock with downgrades in recent months, have been concerned the company would suffer declines in iPhone unit sales over the next couple of years. "There's a hole in Apple's product portfolio - they do not have a low-cost smartphone to fully exploit emerging markets". "We did not foresee the magnitude of the economic deceleration, particularly in Greater China", Cook wrote. Analysts had been expecting revenues of around $91bn, according to market analyst FactSet.

This marked the first time Apple had issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007. On its website in China, Apple now advertises the iPhone XR for 4,399 yuan with the trade-in of an iPhone 7 Plus. In the broader market, the S&P 500 futures fell 1.5 percent.

The U.S. and China have raised tariffs on billions of dollars of each other's goods in a fight over issues including Beijing's technology policy, which Washington alleges is predatory.

Apple's move was not entirely a surprise.

But the biggest problems came from lackluster sales in China and equally disappointing iPhone upgrades. But Cook specifically said he "would not put China in that category" of countries with troubled growth.

Cook also spoke of "rising trade tensions with the United States" which has seen Apple become the target of a boycott campaign by prominent Chinese companies, something which has escalated more when Huawei's CFO was arrested in Canada.

Apple is now the highest-profile multinational corporation to warn that the economic slowdown in China could hurt its business. Automakers such as Ford Motor Co, Hyundai Motor Co and Nissan Motor Co Ltd all previously said they planned to cut production in the country.

"Until it changes this pricing strategy, it is unlikely to see market share growth and will most likely see a gradual contraction as iPhone users upgrade at slower rates", said Richardson. USA stocks have tumbled over the last three months as investors anxious that the economy might slow down dramatically because of a variety of challenges including the trade dispute and rising interest rates.

Huawei recently announced that it shipped more than 200 million units a year ago.

In his letter, Cook said Apple has $130 billion in net cash and that it intends to continue its efforts to reduce that cash balance to net zero, which the company has so far accomplished through dividend increases and share buybacks.

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