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Apple CEO cites trade conflict in China sales shortfall

By WILLIAM HENNELLY in New York | China Daily USA | Updated: 2019-01-03 23:10
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An Apple company logo is seen behind tree branches outside an Apple store in Beijing, December 14, 2018. [Photo/Agencies]

The US-China trade dispute is a factor in Apple's declining revenue in China, CEO Tim Cook stated in a letter to shareholders released on Wednesday.

Apple had previously told investors to expect overall revenue between $89 billion and $93 billion in the fiscal 2019 first quarter. On Wednesday, it reduced that estimate by 7.6 percent to $84 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 wrote. "In fact, 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."

" The trade tensions between the United States and China put additional pressure on their (China's) economy," Cook said in an interview on CNBC on Wednesday. "So we saw as the quarter went on things like traffic in our retail stores, traffic in our channel partner stores, the reports of the smartphone industry contracting, particularly bad in November. I haven't seen a December number yet, but I'd bet it would not be good either."

"I was in Southeast Asia this summer and saw so many phones, not just from Xioami and Huawei, but also brands like OPPO that will probably never be sold here in the States," Jim Collins, founding partner of investment site The Portfolio Guru, told China Daily. "I think the iPhone has too much tech in it to ever hit the price points those domestic competitors can.

"To me, that's the real problem for Apple in China, moreso than the trade war," Collins said.

Apple also faces challenges from domestic smartphone makers in China such as Huawei and Xiaomi, which have grabbed more market share.

"Despite these challenges, we believe that our business in China has a bright future," Cook wrote in the letter. "The iOS developer community in China is among the most innovative, creative and vibrant in the world," Cook wrote. "Our results in China include a new record for Services revenue, and our installed base of devices grew over the last year. We are proud to participate in the Chinese marketplace."

Apple did top the Chinese smartphone makers in sales on Alibaba's Singles Day in November.

The cut in revenue guidance sent Apple's stock down nearly 8 percent in after-hours trading on Wednesday. The shares had already declined more than 30 percent from their high in October.

Analysts and investors have been increasingly bearish on Apple stock amid its worst slump in more than a decade. Many Apple products were advertised with discounted prices after device trade-ins.

The company also cited the strong US dollar and lower battery-replacement prices as a drain on sales. Apple, despite the challenges in China, expects an all-time high in earnings per share when it reports on Jan 29.

US President Donald Trump had told The Wall Street Journal in November that the iPhone and other Apple products could be affected by the next round of tariffs, which would cover the $255 billion in Chinese products not currently included. Apple previously warned that such tariffs would harm the company.

The US and China agreed to a trade truce at the G20 meeting on Dec 1, and have put any more tariffs on hold. Also, President Trump and President Xi Jinping had a productive phone call last weekend.

Trump administration officials are scheduled to travel to Beijing for trade talks early next week.

Reuters and Bloomberg contributed to this story.

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