Dow Falls 500 Points after Tim Cook Slashes Apple Revenue Forecast

Gladys Abbott
January 6, 2019

News that the iPhone maker cut its first-quarter revenue forecast, described by one analyst as Apple's "darkest day in the iPhone era", had something for everyone who has panicked over US stocks in the past few months.

Investors also were encouraged by news that the US and China will hold trade talks in Beijing on January 7 and 8. The iPhone is the most important Apple product and brought in around 60 percent of the total revenues. Companies such as General Motors, Caterpillar and Daimler have all said recently that trade tensions and slower growth in China are damaging their businesses.

Jain also thinks the announcement is due to Apple-specific problems, including lack of product innovation and differentiation versus Chinese rivals.

Chief Executive Officer Tim Cook said sales will be about $84 billion in the quarter ended December 29, down from earlier estimates of $89 billion to $93 billion.

Apple stock plummeted 10 percent, wiping out more than $74 billion of the company's market value. "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", Cook writes in the letter. "Apple is a great company".

The broader S&P 500 fell 24 points, or 1 per cent, to 2,485. In the USA government bond market, a typical safe-haven, the yield on the benchmark 10- year, which moves inversely to the bond's price, sank to an 11-month low. Apple shares have dropped almost 10% as of the time of writing, putting the tech giant on track for its worst daily loss in more than half a decade.

Why it's important: While Apple has blamed support for Chinese brands and a slowing economy on its revenue drop, analysts pointed out that the company itself may be to blame. And after several component makers in November forecast weaker-than-expected sales, some market watchers called the peak for iPhones in several key markets. That's $7 billion less than analysts expected.

The 64 GB variant of the iPhone XScosts about $430 more in Indiathan it does in the United States.

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The significance of Apple's results is partly that it sheds a tiny bit of light on what's really going on in China - and how that might affect other firms and economies - in a country where top-line economic data given by the government are murky at best and fudged at worst. Automakers such as Ford Motor Co, Hyundai Motor Co and Nissan Motor Co all previously said they planned to cut production in the country.

During the past year, the US and China slapped new tariffs on hundreds of billions of dollars' worth of imports in a trade war that threatens to snarl multinational companies' supply lines and reduce demand for their products.

Energy lost some ground even though the price of West Texas Intermediate hit its highest level in two weeks.

But some investors were heartened by Apple's plans on using its cash pile.

"Man could be on Mars before Apple is producing more of its iPhones in the United States, just from a supply chain cost perspective", Dan Ives, managing director of equity research at Wedbush, told CNN Business.

Tariffs on imported smartphones, a ban on Apple Stores in India and the weakness of the Indian rupee against the USA dollar have hobbled the Silicon Valley giant.

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