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Weak iPhone Demand Hammers Apple Shares, Rattling Fragile Market

iPhone 8

By Jeffrey Schwartz

Apple had its worst day in six years Thursday, with shares plunging nearly 10 percent following CEO Tim Cook’s unexpected warning that revenues were sharply lower than it had projected for the most recent quarter. Weaker demand for iPhones and a shortfall in sales of all Apple products in China were key contributors to the change in guidance.

Revenues for the period are likely to fall around $84 billion when the company reports on Jan. 29, Cook warned in a letter to investors late Wednesday afternoon, following the close of the U.S. markets. Guidance two months ago had forecast revenues falling to between $89 billion and $93 billion.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook said in his letter. “Most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.”

Stoking fears that Apple’s warning was just the first of what could be a broader economic slowdown resulting from the current trade war war between the U.S. and China and other macroeconomic issues, the Dow Jones Industrial Average fell 660 points Thursday, or nearly 2.5 percent.

Cook acknowledged that demand for Apple’s latest new iPhones particularly fell short.

“In some developed markets, iPhone upgrades also were not as strong as we thought they would be,” Cook wrote.

While Apple’s announcement caught Wall Street off guard, the company’s announcement in November that it would no longer report iPhone sales, was a harbinger.

Electric's Ryan Denehy

Electric’s Ryan Denehy

Ryan Denehy, founder and CEO of Electric, an IT services provider in New York City that primarily supplies Apple-based solutions to small and midsize businesses, has seen very little demand for iPhones from companies.

“All of our data suggests that the market for iPhones is getting close to saturation and there aren’t enough corporate customers lining up to make up the difference,” Denehy said. Nevertheless, demand for the rest of the Apple portfolio, which Apple also upgraded in October, remains strong, he noted.

“Apple products are as popular as ever and we are continuing to see strong demand, particularly for laptops and tablets,” he said.

As of the third quarter of 2018, iPhones accounted for 13.2 percent of all smartphones shipped worldwide, according to IDC’s most recent report.

Upgrades have tapered off in recent years as a result of fewer carrier incentives and incremental new features. Meanwhile, many full-featured iPhones cost more than $1,000.

Analysts worry that the trend could continue through next year, especially since the company isn’t expected to roll out an iPhone that’s 5G-based until the latter part of 2020. Overall, people are holding on until they have a compelling reason to upgrade.

“They have been selling a phone that looks and feels, to consumers, like the same phone that’s been on the market for 10-plus years,” Denehy said. “They either need to completely reinvent the modern cellphone again or develop a new product that can have huge sales growth. Both are hard things to do, but they have done it before.”


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