Apple earnings warning a casualty of trade war

The Apple (APPL) share price dropped nearly 9% on the sharemarket after they issued earnings warning that they will earn much less than they have previously advised/expected. The drop in earnings is said to be primarily due to the US trade war with China. The share price has recovered a little on Friday US time, by midway through the day bouncing back 3.4%.

9to5mac: Apple’s shock earnings warning sees AAPL stock plunge 9% in pre-market trading

Apple’s shock earnings warning – the first time it has issued one since 2002 – has sent the stock price crashing in pre-market trading. At the time of writing, AAPL is almost 9% down on yesterday’s close.

It follows a letter from Tim Cook warning investors that Apple expects to miss the low end of its fiscal Q1 guidance by $5B, and the high end by $9B.

Cook said that almost all of the missing revenue was in China, thanks to a combination of low economic growth in the country and tensions created by the Trump administration’s trade war with China.

It wasn’t just AAPL stock hit by the news: Business Insider reports that shares in major Apple suppliers are also taking a hammering. AMS, which makes Face ID sensors for Apple, took the brunt of the impact, losing 17% of its market cap overnight – but it wasn’t the only casualty.

Apple’s last earnings warning was in 2002.

Like any wars there can be casualties on all sides in trade wars.

 

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24 Comments

  1. Gerrit

     /  5th January 2019

    Not a trade war casualty at all. More anti-Trump bull dust and fake news.

    “In a letter to investors published Wednesday, Apple CEO Tim Cook pointed to two problems in particular that led to the sudden move: Economic weakness in emerging markets that impacted Apple more than it expected, and fewer iPhone upgrades that the company also failed to anticipate.”

    http://fortune.com/2019/01/03/apple-iphone-sales-china-analysts/

    Apple high prices are slowing phone turnover rates which together with increased competition from equal but cheaper phones is reducing the need or desire for the Apple phones.

    “Perhaps in part because there are no easy fixes, Apple failed to acknowledge the possibility that current iPhone prices are simply too high (stunningly, we note that iPhones prices are nearly 5x higher than the average non-Apple smartphone sold globally). Moreover, we believe that the high-end smartphone market is fully mature with *structurally* elongating replacement cycles, which we maintain is the company’s key long-term challenge.”

    From a marketing viewpoint Apple is a mature market player being outgunned by equally specified but cheaper competition.

    Reply
    • Gerrit

       /  5th January 2019

      First down ticker cant handle reality.

      Reply
      • Duker

         /  5th January 2019

        Yes. I thought that ‘trade war’ connection on last nights news was seriously off. ( they also got the idea that ‘Democrats have taken over congress’ wrong as well – are the newsrooms such idiots abroad?)
        Thanks for the link for the real reasons

        Reply
      • kluelis

         /  5th January 2019

        @First down ticker cant handle reality.” Gerrit can’t handle first down ticker. Such a sensitive snowflake.

        Reply
        • Kitty Catkin

           /  5th January 2019

          The ticks have gone from my YNZ.

          Reply
          • kluelis

             /  5th January 2019

            @Kitty Catkin. “The ticks have gone from my YNZ”.
            You have 2 here 🙂

            Reply
            • Kitty Catkin

               /  5th January 2019

              There are no ticks or any way to tick here.

              I wish that I could stop little boxes with replies appearing at the bottom of the screen. The tedium of another trolling message from Corky is….tedious.

  2. Gerrit

     /  5th January 2019

    Now when we get to the nitty gritty, the increase in price for an Iphone in the USA is $160. Not a massive increase.

    https://appleinsider.com/articles/18/11/30/iphones-could-cost-up-to-160-more-if-china-tariff-threat-is-followed-through

    Bearing ion mind that EVERY phone manufactured in China will face a similar import tax as the Iphone.

    So why the hit on Apple stocks?

    Because Chinese consumers (Apples largest market) are not buying the Iphones in the volume and price that Apple had budgeted for. Hence the notice to shareholders and the stock exchange for lower than expected earnings)

    Tarrifs had nothing to do with it. It is a flimsy excuse.

    Oh and the exception list for the tariifs is growing daily.

    https://9to5mac.com/2018/09/18/apple-china-tariffs-iphone/

    Reply
    • Gezza

       /  5th January 2019

      1ewes at 6 put some of the reduced demand from Chinese buyers down to Chinese consumers resolving to buy Chinese products. Also to consumer fatigue with having to continually upgrade to Iproducts with new features.

      Reply
      • Blazer

         /  5th January 2019

        competition is hot ,Samsung,Huawei,and many others are giving Apple a run for the money.

        Reply
        • Gezza

           /  5th January 2019

          Well, let’s face it, it would be perfectly understandable when the Chinese people hear the vitriol & sanctions directed against them by Trump for them to go well Fuk Yu Tu, we’ll buy Chinese made. It’s just as good as your shit.

          Reply
          • artcroft

             /  5th January 2019

            Could be that in China, buying American will see you given lots of down ticks on your social credit score.

            Reply
            • Corky

               /  5th January 2019

              Have you checked recently to make sure your ”irons” have been made in good ole US Of A…an not the Guangdong region of China, Arty?

            • Kitty Catkin

               /  5th January 2019

              I hope that Art won’t dignify that with a response.

      • Alan Wilkinson

         /  5th January 2019

        Prob quite a lot of folks wonder why they need to pay megabucks for an Apple fashion statement when they can buy something that does all they need from the likes of Motorola for under NZ$200.

        Reply
  3. David

     /  5th January 2019

    As a shareholder in Apple, at 117 bucks, this drop in share price has nothing at all to do with Trump or trade disputes..if you want to blame Trump for the drop then you must praise him for the rise from 120 to 220.
    Apple are pricing themselves out of the market, its that simple and they will fix that and recover.

    Reply
    • Joe Bloggs

       /  5th January 2019

      “this drop in share price has nothing at all to do with Trump or trade disputes”

      trump’s very own economic adviser Kevin Hassett calls bullshit on your blanket denial.

      Reply
      • Gerrit

         /  5th January 2019

        You need to read full texts, not just headlines

        “The president’s top economic adviser saying that the White House’s economic agenda is hurting American companies and causing the stock market to decline is a bit of an unusual tactic. But far from being worried by the prospect of more negative earnings shocks, Hassett sees it as evidence that Trump’s policies are working.”

        https://www.vox.com/2019/1/3/18166832/kevin-hassett-apple-china

        Some background on the strategies and most of all the Chinese “WeChat” app that is killing Apple.

        Hopefully you will read the full text and get an understanding of the strategy involved.

        “The basic logic of Hassett’s argument is like this:

        Apple’s revenue and share price are falling because the Chinese economy is sliding, so Chinese consumers are buying fewer iPhones. Because this reflects a general problem in the Chinese economy, it ought to end up afflicting not just Apple but a lot of American companies that have significant Chinese sales. About 20 percent of Apple’s revenue comes from China, which is a lot, but companies like Corning, Starbucks, and Intel are even more dependent on China, and even less exposed companies like Nike, Boeing, and 3M still count on China for about 10 percent of sales.

        On one level, that sounds pretty bad.

        But Hassett is arguing that because the cause of the bad news for American companies is the overall bad news about the Chinese economy, this means that Chinese people are suffering much more. And that’s good because it means the Chinese government is going to have to surrender.

        “That puts a lot of pressure on China to make a deal,” Hassett said. “If we have a successful negotiation with China, then Apple’s sales and everybody else’s sales will recover.”

        This is the tricky negative-sum logic of trade wars. If US policy succeeds in wrecking the Chinese economy, America’s economy will suffer as well, because the US-Chinese economic relationship is mutually beneficial. But if they suffer more than America does, then the US can perhaps reboot the relationship in a way that is more favorable to the country. The US just needs to grit it out first.

        Is trade really Apple’s problem?

        Of course, this assumes that Trump’s saber-rattling and tariffs are the real source of Apple’s China sales woes.

        There’s some reason to doubt that. After all, in May 2017, before any of this trade stuff was heating up, technology analyst Ben Thompson predicted Apple would suffer iPhone XS sales problems in China, not because of trade but because of WeChat. Chinese people use WeChat for everything, which makes smartphone operating systems less important:

        Connie Chan of Andreessen Horowitz tried to explain in 2015 just how integrated WeChat is into the daily lives of nearly 900 million Chinese, and that integration has only grown since then: every aspect of a typical Chinese person’s life, not just online but also off is conducted through a single app (and, to the extent other apps are used, they are often games promoted through WeChat).

        There is nothing in any other country that is comparable, particularly the Facebook properties (Facebook, Messenger, and WhatsApp) to which WeChat is commonly compared. All of those are about communication or wasting time: WeChat is that, but it is also for reading news, for hailing taxis, for paying for lunch (try and pay with cash for lunch, and you’ll look like a luddite), for accessing government resources, for business. For all intents and purposes WeChat is your phone, and to a far greater extent in China than anywhere else, your phone is everything.

        Whether you own an Android phone or an iPhone, if you’re in China, you are using the same WeChat app to do basically everything. Outside of China, Apple’s sales proposition is phone hardware and a unique operating system. In China, it’s really just the hardware. Thompson predicted this would spell trouble for Apple whenever it tried to market a phone in China that didn’t look new. And right now Apple is trying to market the iPhone XS, a phone that looks identical to the iPhone X.

        But it’s also true that there appears to be a very real economic slowdown in China — a slowdown that’s visible in things like Chinese sales tax revenue and auto sales.

        But even here, it’s far from clear that trade tensions with the United States are the main source of trouble. Instead, the Chinese government’s ongoing efforts to reduce risk in the domestic banking system appear to have greatly slowed investment and durable goods consumption.

        Strangely, though, it’s in essentially everyone’s interests to put Trump and trade at the center of the discussion even if it’s not true.
        The trade story is better for everyone

        Apple, for starters, is much better off in a world where people believe declining sales are a hiccup induced by Trump’s trade policies than in a world where people believe they have a structural problem selling their phones in China.

        And the Trump administration, naturally, would like to spin bad stock market news as good news about the success of its policies. What’s more, the administration is itself divided over how far to go with the trade war. For guys like Hassett who need to defend Trump publicly on television while internally pushing back against hardcore protectionists, the story that the trade war is depressing stocks is particularly appealing because it suggests that Trump should try to make a deal and declare victory ASAP in order to kick-start a stock market boom.

        Meanwhile, the Chinese government would obviously rather blame Trump for the country’s economic problems than blame its own banking policy. To admit that the slowdown is a largely self-inflicted wound because it couldn’t think of a way to reduce bank risk that didn’t devastate domestic demand would make the government look terrible. To say that the buffoon in the White House is responsible, so everyone needs to hang tough while they try to strike a fair deal, sounds much better.

        The scenario all these parties are hoping for is roughly a replay of the NAFTA sweepstakes, in which, after a lot of tweets and drama, Trump settled on small changes. But that probably won’t actually solve any of these underlying problems — no matter what deal is reached, China’s economic problems seem to be primarily domestic in nature, and American companies that have come to count on strong sales to Chinese customers have a problem that Trump didn’t cause and probably can’t fix.”

        Reply
        • Blazer

           /  5th January 2019

          Apple and a host of other multi national companies cannot thrive without ….cheap asian..labour.

          Reply
          • Duker

             /  5th January 2019

            Cheap ? I understand the plants are highly automated and the huge workforce wasnt available do the same work in US.

            Reply
            • Blazer

               /  5th January 2019

              China,Vietnam,Indonesia,Bangladesh,India…cheap labour compared to western countries.

              Your post has an inherent contradiction .

            • Duker

               /  5th January 2019

              Not its not
              “The factory, run by the Taiwanese electronics manufacturer Foxconn, employs about 350,000 people and produces about half of the world’s iPhones.”
              and automation isnt an all or nothing situation- they are probably at the first stage of automation, which is high by NZ standards
              “So what exactly are the phases? In the first, factories are equipped with robots at individual workstations. Those robots will handle tasks that are either too dangerous for humans or are simply things that humans normally wouldn’t want to do.”
              or the robots do it faster and to a much higher precision ( both)
              https://www.digitaltrends.com/mobile/foxconn-three-phases-factory-automation/

            • Blazer

               /  5th January 2019

              ‘ I understand the plants are highly automated’

              ‘Foxconn, employs about 350,000 people and produces about half of the world’s iPhones.”

              ‘the huge workforce wasnt available do the same work in US.’


              The current population of Taiwan is 23,727,853.

              The current population of the United States of America is 327,948,048 as of Thursday, January 3, 2019.

              ‘unemployed persons increased by 276,000 to 6.3 million’

              Very good.

  4. Trump making untrue claims is the norm.

    Reply

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