Apple lowers revenue guidance for Q1 2019 citing fewer iPhone upgrades in China

Apple has announced that it is revising its guidance for Apple’s fiscal 2019 first quarter, which ended on December 29. The company expects total revenue of approximately $84 billion, gross margin of approximately 38%, operating expenses of approximately $8.7 billion. Apple expects the number of shares used in computing diluted EPS to be approximately 4.77 billion.

Apple says that it is aware of the different timing of the iPhone launches would affect the year-over-year compares. The top-end iPhone XS and iPhone XS Max, shipped in Q4’18—placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1’18, placing the channel fill and early sales in the December quarter. This created a difficult compare for Q1’19, and this played out broadly in line with the expectations, says Apple.

The company also says that it knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce its revenue growth by about 200 basis points as compared to the previous year. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained. Owing to the economic weakness in some emerging markets had a significantly greater impact than it had projected. This and other factors resulted in fewer iPhone upgrades than we had anticipated.

Apple says that over 100% of the year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac, and iPad. China’s economy began to slow in the second half of 2018. The economic environment in China has been further impacted by rising trade tensions with the United States. Despite the challenges, Apple believes that its business in China has a bright future.

Lower than anticipated iPhone revenue, primarily in Greater China, accounts for the revenue shortfall to the company’s guidance and for much more than our entire year-over-year revenue decline.  However, categories outside of iPhone services, Mac, iPad, Wearables/Home/Accessories combined to grow almost 19 percent year-over-year. Apple, however, has seen improvements in the installed base of active devices which hit a new all-time high—growing by more than 100 million units in 12 months.

Apple services generated over $10.8 billion in revenue during the quarter, growing to a new quarterly record in every geographic segment, and It is on track to achieve our goal of doubling the size of this business from 2016 to 2020. Wearables grew by almost 50% year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers. MacBook Air and Mac mini powered the Mac to year-over-year revenue growth and the launch of the new iPad Pro drove iPad to year-over-year double-digit revenue growth. Apple believes that it expects to exit the quarter with approximately $130 billion in net cash.