Apple (AAPL) has finally done what many analysts expected it to and announced that first quarter revenue expectations are significantly lower than was previously reported. From a previous predicted range of $89 billion to $93 billion, the figure now being quoted is $84 billion.
The news saw Apple shares down by 7.5% at opening on Thursday 3. This is hardly surprising given that this is the biggest downturn in revenue expectations for the tech giant in more than a decade.
The China effect
Although upgrades for Apple products have been lower than normal across the globe, it’s the lack of demand for iPhones and related products in China that has had the biggest impact on Apple revenue. It’s easy to see why this is the case given that the Chinese market makes up 15% of total Apple sales.
There are two main factors affecting the slow down of interest in Apple products within China.
- The slow down in growth of the Chinese economy.
- The ongoing trade war between China and the US.
Both of these issues seem likely to continue having an adverse impact for the foreseeable future. This impact is being felt not just by Apple but also by the other members of FAANG (Facebook, Apple, Amazon, Netflix and Google), and across the tech community.
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An announcement that was expected
The recent announcement by Tim Cook, and the effect on AAPL stocks, was not entirely unexpected. Many analysts had already adjusted their forecasts for Apple profits downwards last quarter, and investors were taking note.
AAPL stocks dropped by 30% in the last quarter of 2018. The effect was felt across the tech sector which dropped by 17% over the same period.
The ripple effect of falling AAPL stocks
As we touched on earlier in this article, it’s not just Apple which has been affected by the downgrading of its profit expectations, and the related downturn in AAPL stocks. Companies that are involved in providing components for Apple products have also been affected.
Hon Hai Precision has seen stocks fall by 2% in Taipei. AMS (AMSSY), the Austrian company which provides light sensors to Apple, saw stocks fall by more than 19%. A fall of 7% was felt by Dialog Semiconductors (DLGNF), chip makers for Apple products.
The effect has even been felt outside of the stock markets as western currencies have fallen against the yen, as investors have sought the security of the Japanese currency.
Problems continue ahead
As reported by Forbes, the current slow down in the Chinese economy is not a normal cyclic downturn. It’s to do with an economy which has many obstacles to overcome in order to cope with the ongoing impacts of the previous speed of its growth. These obstacles include:
- A diminishing workforce due to the one child per family policy. This is an ongoing problem for a country that is so reliant on its manufacturing sector.
- The legacy of debt left by the Chinese government’s $586 billion spend to re-ignite the economy following the global financial crisis.
- The struggle to change from a developing economy to a developed economy.
In order to overcome these obstacles, China needs to embrace new habits. This will take time. It’s this time which is likely to present further problems for Apple and its tech associates. Suffering a reduction in a significant revenue stream like China, for an unknown period of time, is an issue that is going to be difficult to overcome.