The broken clock pundits are working overtime on Thursday morning following a grim earnings warning that Apple issued on Wednesday afternoon. After all these years of claiming that Apple’s iPhone sales were doomed to collapse, the company finally ran into some serious trouble last quarter as growing tensions between the US and China apparently took a big bite out of iPhone sales. Apple relies on the iPhone for the bulk of its revenue and profit each quarter, so sliding sales inevitably have a huge impact on the company’s performance.
According to the revised guidance the company issued on Wednesday afternoon, Apple now expects to report $84 billion in revenue for the fiscal first quarter, down from the $89 billion to $93 billion range Apple initially provided last October. That’s an on-year decline of nearly 5%, so investors are obviously not happy. Apple shares were trading down more than 9% in Thursday’s pre-market session.
Apple CEO Tim Cook issued a public letter alongside the company’s revised guidance, seeking to put things in perspective and assure investors that this is merely a speed bump rather than a brick wall. They were not convinced. Internally, Cook also sought to ease tensions among Apple’s many employees around the world following Wednesday’s news. He issued a memo to employees ahead of a big meeting set to be held on Thursday, during which Cook’s message is expected to me more of the same.
Here’s Tim Cook’s memo in its entirety, as obtained by Bloomberg:
Team,
Happy New Year — I hope everyone was able to rest and enjoy time with loved ones over the holidays.
This afternoon we issued a letter to Apple investors explaining that we are revising our financial guidance for the holiday quarter. I encourage you to read it. As you will see, our revenue shortfall in Q1 is from iPhone, primarily in Greater China.
While we are disappointed to be falling short of our quarterly revenue goal, our fiscal first quarter was also a record setter for revenue from Services, Wearables and the Mac. iPad revenue grew double-digits over the year-ago quarter, and iPhone activations in the U.S. and Canada set new Christmas Day records. We expect to set all-time revenue records in key markets including the US, Canada and Mexico, Western European countries including Germany and Italy, and countries across the Asia-Pacific region like Korea and Vietnam. Our worldwide installed base of active devices also hit a new all-time high, reflecting the loyalty of our customers and their appreciation for the work you do.
We are tremendously proud of the innovations we’re delivering to our customers with iPhone XR, iPhone XS and iPhone XS Max. These are, without a doubt, the best iPhones we’ve ever made. We did not set a new record for iPhone sales in Q1, however, due to a number of factors — some macroeconomic, and some specific to Apple and the smartphone industry.
External forces may push us around a bit, but we are not going to use them as an excuse. Nor will we just wait around until they get better. This moment gives us an opportunity to learn and to take action, to focus on our strengths and on Apple’s mission — delivering the best products on earth for our customers and providing them with an unmatched level of service. We manage Apple for the long term, and in challenging times we have always come out stronger.
With that in mind, please join me for an all-hands meeting on Thursday morning at 9:30 a.m. PT. Be sure to check AppleWeb for more details. Due to construction at Apple Park, we’ll be gathering at Town Hall on the Infinite Loop campus. Join us there in person, or via live stream through AppleWeb. I’ll have more details about the quarter, and I’m looking forward to your thoughts and questions.
Hope to see you there.
Tim