Sluggish China market cuts into Apple's profits
As expected, the iPhone maker reports its first drop in revenue in over a decade
Apple has reported its first decline in revenues in over a decade as iPhone sales and the dwindling Chinese economy cut the tech giant's profits by 4.5%.
The results come just three weeks after Apple shocked its investors with its first profit warning since 2002. The iPhone maker cited the Chinese economy as a factor, currently faltering under an on-going trade war with the US. This has been backed up with revenues from China at $13.17 billion, which is a drop of nearly $5 billion from a year ago.
This is arguably not the start to 2019 the company had envisioned when launching the iPhone Xs, Xs Max and Xr, but the cost of these devices and the economic decline in China have forced the company to plan for the worst and cut back on iPhone production by 10%.
Further to cut back in production, the company's CEO has hinted that iPhone prices could also be reduced to encourage more demand. Speaking to Reuters on Tuesday, Cook said Apple will adjust foreign prices in some markets and reset them at or close to what they were one year before in local currencies. It means that Apple could absorb the cost of the strengthening dollar.
"We've decided to go back to iPhone prices more commensurate with what our local prices were a year ago, in hopes of helping the sales in those areas," he said.
In August the company became the first to be valued at $1 trillion but at present its currently $266 billion less than that. Add to this, the FaceTime bug the company had to fix this week, where it was reported that the feature allowed for eavesdropping and it paints a picture of a fall from grace.
In the grand scheme of things, Apple seems to have taken a few companies down with it. Samsung also posted lower profit expectations at the start of the year and a number of other iPhone suppliers also suggested drops in revenues due to the lack of demand in the most iconic smartphone brand.
Thomas Husson, Forrester's VP and principal analyst believes its time for the company to find a new revenue stream as it had previously done with wearables.
"Financial analysts have already taken into account lower revenue outlook, geopolitical worries and macro-economic conditions in China," he said. "Since Apple often sets the tone for a broader technology ecosystem, the degree of deceleration in China is likely to be scrutinised as a leading indicator of the broader tech turnaround.
"Apple's dependency on the iPhone is indeed nothing new. The company needs to generate new revenue streams by entering new markets like it successfully did with the Apple Watch and the service business."
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