Apple, Inc. shares plummeted soon after CEO Tim Cook announced the company's revenue for its 2019 first quarter would be some $9 billion lower than projected due to a significant slowdown in the sales of its devices in China.
In guidance to investors, Cook said revised first-quarter forecasts estimated revenue at $84 billion, down from the company's initial estimates of $89 billion to $93 billion. This plunge also represents a drop in sales revenue year-on-year when it reported record revenues of $88.3 billion.
Cook's rare step in lowering Apple's sales guidance for the usually robust holiday quarter follows his admission Apple had badly underestimated the economic challenges battering China. He said the Chinese economy slowing to its slowest pace in 25 years hurt iPhone sales. Trump's trade war with China also made things worse.
Wall Street stopped trading on Apple shares at about 4:25 p.m. ET Wednesday in advance of Apple's guidance announcement. As expected following the demoralizing report, Apple's stock fell 8.49% to $144.51 per share when trading resumed 25 minutes later -- the stock's lowest level since July 2017.
"We believe the economic environment in China has been further impacted by rising trade tensions with the United States," said Cook in a statement.
Cook noted that as the climate of mounting uncertainty hit financial markets, the effects appeared to reach consumers, as well. One offshoot was that traffic to Apple's retail stores and its channel partners in China dropped as the quarter progressed. He also said market data confirmed the contraction in Greater China's smartphone market was particularly sharp.
Cook also reported a gross margin of 38 percent; operating expenses of $8.7 billion; other income/(expense) of $550 million; a tax rate of 16.5 percent before discrete items and the number of shares used in computing diluted EPS at 4.77 billion.
Cook said based on these estimates, Apple's "revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance."
He said Apple two months ago knew the first quarter of its new fiscal year will be impacted by both macroeconomic and Apple-specific factors. Based on Apple's best estimates of how these might play out, the company predicted it might report slight revenue growth year-over-year for the first quarter.
Cook admitted the biggest factor in its sharply lower Q1 sales was China's weakening economy, which is Apple's third largest market after the U.S. and Europe.
He pointed out that while Apple anticipated some challenges in key emerging markets, it didn't foresee the magnitude of the economic deceleration, particularly in Greater China. Most of Apple's revenue shortfall to its guidance and over 100 percent of its year-over-year worldwide revenue decline occurred in Greater China across iPhone, Mac, and iPad.
