China Isn't Apple's Only Problem

Proshare


Friday, January 04, 2019    12:22PM / By AngelList Weekly  

 

The world's first trillion-dollar company suddenly seems a bit vulnerable.


On Wednesday, Apple lowered its sales estimates for the first time in over a decade. While Apple had once predicted $93 billion for first-quarter revenue, the company is lowering that projection to $84 billion—and Apple's shares fell over 8% as a result. Thursday morning, the Dow dropped over 650 points.

 

Apple is dealing with two distinct problems simultaneously:

  • The Chinese market isn't generating the revenue Apple expected.
  • U.S. iPhone users aren't upgrading their iPhones like they used to.

 

As recently as 2016, Apple was the market leader in Chinese smartphones. In Q4 of 2017, the Chinese market accounted for nearly 20% of Apple's revenue. In 2019, however, things seem to be changing. The slowdown of the Chinese economy, rising tensions from the U.S.-China trade war, and increased competition from smartphone providers like Huawei have all contributed to Apple's poorer-than-expected performance in China.


But while the Chinese economy and U.S.-China relations aren't quite in Tim Cook's control, Apple's problems in the U.S. market certainly are.


Four years ago, iPhone users would upgrade their phones about every two years. As a result, Apple enjoyed a fairly consistent demand for new iPhones within its existing customer base. In 2018, however, studies found the average iPhone user was waiting almost three years before upgrading. The majority of people who haven't upgraded, according to Barron's, held off either because they found their current phone to be “just fine” or because the price of a new phone was too high. Simply put, new iPhone models no longer have that “must have” appeal to make customers shell out more money to upgrade as quickly as they used to.


This slowdown in upgrades in the U.S. market, as well as uncertainty in the Chinese market, has hit Apple hard, contributing to the tech giant's 28% slide since November 2018. It remains to be seen if Apple will be able to course-correct quickly and—perhaps most importantly—course-correct with Tim Cook's credibility intact.

 

 

Proshare Nigeria Pvt. Ltd.

 

 

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