Apple News Rattles Investors for Long-Term Outlook
After years of Apple’s financial success bolstered by iPhone sales, the company is now contending with a slowdown that shows the weakness of its dependence on one product, according to stock analysts.
Several reacted with shock to the company’s warning last week that 4th quarter earnings would be lower than projected because of iPhone owners’ reluctance to upgrade to the latest model⏤compounded by the slowing Chinese economy paired with soft sales of the $1,000-plus model, the Apple iPhone XS.
Forbes magazine analyzed the company’s announcement of projected lower earnings, which caused its stock to drop 9% the same day, by comparing it to GE, a company that warned its investors of a bad earnings report to try to insulate the company from fallout over its dependence on a blade turbine technology that was problematic. GE’s other revenue sources are also under pressure because of market changes and trade barriers that could affect earnings for years to come, despite pledges to cut costs and build up income from other divisions.
According to Bespoke Research it was the first time since June 2002 that Apple had issued a press release to report downside guidance to an upcoming quarterly period. So, it had been more than 16 years since Apple felt the need to warn the Street of a “miss.” Given the magnitude of the miss and the delay until Apple’s actual earnings report, January 29th, this was an example of corporate communications best practice from a well-run company.
The company announced last fall that it would stop reporting its unit sales on the phone, which indicated that sales were slowing, according to reactions by many analysts.
CEO Tim Cook’s letter to investors is on the Apple website in its entirety. Significantly, Cook wrote: “China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the United States.”
Mashable.com stated in a story the day after the let-down letter by Cook that the phones aren’t priced competitively anymore. The headline for the story, “It’s official: iPhones are too expensive,” says it all. Reporter Raymond Wong summarized it thusly:
“Simply put: new iPhones are too expensive, starting at $749 for an iPhone XR and $999 for an iPhone XS. And so, too, is every other product Apple sells, including the new iPad Pros, which start at $799, and the new MacBook Air at $1,199.”
According to Wong, many consumers resist upgrading to the new phone because they like their headphone jacks on the iPhone 7, as well as the home button and touch ID instead of facial recognition on earlier models. Older phones are also running faster on the new IOS 12. Wong gave the iPhone XR, a less costly model starting at $749, a higher rating than the XS because none of the new phone’s features made it more appealing.
“For once, the cheaper iPhone is the better choice,” the story stated.
CNET magazine’s rating of the iPhone XS at 8.8 was lower than that of the XR (8.9), too, partially based on its shorter battery life.
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