What's going on with Apple?

It is Tuesday, January 8, 2019. In case you forgot.
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Apple hits a rough patch

Last week, Apple made headlines for lowering revenue expectations for Q1 from $93-$89 billion to $84 billion.

What does that mean?

All publicly traded companies (a company that issues stock available to the public like Apple (APPL), Netflix (NFLX), Amazon (AMZN), etc.) set expectations or guidance for the financial results of each quarter. The actual financial results are then published at the end of the quarter. Investors use these earnings reports as a way to measure a company’s performance by comparing the actual results to the expectations set earlier.

Apple was expected to bring in $93-$89 billion in revenue during Q1 (typically Q1 is January-March, however Apple reports Q1 as October-December). Before releasing the earnings report for Q1, they revised their expectations lower to $84 billion. This is a red flag for investors and Apple’s stock price is down about 6% since the revision was made.

Why did Apple lower expectations?

In his announcement, CEO Tim Cook explained that Apple’s revenue woes were primarily due poor sales in China. The Chinese economy has cooled off recently, resulting in Chinese consumers purchasing and upgrading fewer Apple products. China is Apple’s third largest market and outlets were quick to associate Cook’s comments with the current trade war between the US and China.

But wait, there's more

An analysis that appeared in the Washington Post before the Apple announcement showed that Americans are waiting longer to upgrade their phones. 

Instead of shelling out serious cash for the new iPhones (which are the most expensive Apple has ever made), people are hanging onto their 5’s and 6’s and opting for extended warranties and low-cost battery replacements.

All doom and gloom for Apple?

Probably not. Instead of focusing on new phone sales, Apple has made an effort to grow their services business (Apple Care, iCloud, Apple Music, etc). Services continue to generate revenue regardless of which phone model a consumer has. So far so good -- last quarter Apple reported that services made up 16% of the company’s total revenue (nearly $10 billion).

Ben Thompson who runs the tech-focused business analysis blog Stratechery, writes, “I suspect the company is in better shape than the last week of hysteria suggests”. 
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Yours truly,
Zac Cherin
Brendan Uyeshiro
Brendan Uyeshiro