On 2nd January, Apple’s CEO, Tim Cook, issued a revenue warning for this quarter to investors, and pointed to challenges in China as being one of the main downward driving forces.

Letter

Bearing in mind that Apple is one of America’s (and the world’s) tech giants, and that it became the world’s first trillion-dollar public company back in August 2018, it has been somewhat of a surprise to hear that its share price has tumbled more than 20% since October, and that the company has now sent a revenue warning letter to its investors revising down its expected earnings for this quarter. In the letter, Mr Cook pointed to the unforeseen “magnitude of the economic deceleration, particularly in Greater China” as one key reason why a previously predicted rise in revenue had now turned into warnings of a fall in revenue.

What’s The Problem?

Tech market analysts and commentators have cited several reasons for Apple’s woes and the link to the Chinese market, including:

  • Apple needs new iPhone sales, but a lack of technological advances in the iPhone since iPhone 8, combined with a hike in the price of iPhones at a time of global economic pressures on consumers have meant a fall in sales.
  • Some competing Android phones may simply be more interesting and offer better value in terms of price / features e.g. Google Pixel, Oppo’s X, OnePlus 6, or the Huawei P20 Pro.
  • Apple relies heavily on phone sales in the Chinese market (Apple makes a massive 20% of its revenue in the Greater China region) but has faced very stiff competition there from the likes of Huawei, Xiaomi, and Oppo with their high value, lower priced phones.
  • Trade war talk and tensions between the U.S. and China have put more downward pressure on Apple phone sales in China.  For example, the detention of a senior Huawei executive caused a patriotism-fuelled backlash against Apple’s phones in China.
  • Apple investors are worried about iPhone sales generally, which have clearly been in decline since the iPhone 8.
  • Apple investors have concerns and questions about how other Apple services will be developed as revenue generators e.g. ApplePay, Apple Music, the App store, plans for television and movies, and goals for competing in the health industry.

What Does This Mean For Your Business?

Apple products and services are known for their quality, reliability, ease of use, and useful features, and many UK businesses / business people will continue to use them. It is difficult to deny, however, that many new Android phone models, such as those from Huawei or Samsung, offer UK buyers great value for money and useful features compared to Apple’s relatively high-priced alternative. This, combined with Apple’s reliance on getting a large part of its revenue in a country (China) where it is facing stiff competition and trade-war pressures are contributing to a challenging time for Apple. 

It is, however, worth remembering that Apple is a trillion-dollar tech giant and is better placed than most to weather any storms and find ways to develop new opportunities and revenue streams.