Read Tim Cook's full letter to investors about Apple sales

Apple chief executive Tim Cook ...

Posted: Jan 3, 2019 6:33 AM
Updated: Jan 3, 2019 6:33 AM

Apple chief executive Tim Cook warned investors Wednesday that the company is lowering expectations for its first-quarter performance in 2019, and he cautioned that investors should expect lower sales from the holiday quarter primarily because of a slowdown in holiday sales.

Today we are revising our guidance for Apple's fiscal 2019 first quarter, which ended on December 29. We now expect the following:

Apple Inc

Asia

Business and industry sectors

Business, economy and trade

China

Companies

Company activities and management

Company earnings

Consumer electronics

Consumer products

Continents and regions

East Asia

Economic development

Electronics

Emerging markets

Financial performance and reports

Financial results

Mobile and cellular telephones

Mobile technology

Personal computers

Smartphones

Tablet computers

Technology

Trade and development

Banking, finance and investments

Business figures

Financial markets and investing

Tim Cook

Revenue of approximately $84 billion

Gross margin of approximately 38 percent

Operating expenses of approximately $8.7 billion

Other income/(expense) of approximately $550 million

Tax rate of approximately 16.5 percent before discrete items

We expect the number of shares used in computing diluted EPS to be approximately 4.77 billion.

Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance.

While it will be a number of weeks before we complete and report our final results, we wanted to get some preliminary information to you now. Our final results may differ somewhat from these preliminary estimates.

When we discussed our Q1 guidance with you about 60 days ago, we knew the first quarter would be impacted by both macroeconomic and Apple-specific factors. Based on our best estimates of how these would play out, we predicted that we would report slight revenue growth year-over-year for the quarter. As you may recall, we discussed four factors:

First, we knew the different timing of our iPhone launches would affect our year-over-year compares. Our top models, iPhone XS and iPhone XS Max, shipped in Q4'18 — placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1'18, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1'19, and this played out broadly in line with our expectations.

Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained.

Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.

In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated.

These last two points have led us to reduce our revenue guidance. I'd like to go a bit deeper on both.

Emerging Market Challenges

While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. 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.

China's economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed. And market data has shown that the contraction in Greater China's smartphone market has been particularly sharp.

Despite these challenges, we believe that our business in China has a bright future. The iOS developer community in China is among the most innovative, creative and vibrant in the world. Our products enjoy a strong following among customers, with a very high level of engagement and satisfaction. 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.

iPhone

Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline. In fact, categories outside of iPhone (Services, Mac, iPad, Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year.

While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.

Many Positive Results in the December Quarter

While it's disappointing to revise our guidance, our performance in many areas showed remarkable strength in spite of these challenges.

Our installed base of active devices hit a new all-time high—growing by more than 100 million units in 12 months. There are more Apple devices being used than ever before, and it's a testament to the ongoing loyalty, satisfaction and engagement of our customers.

Also, as I mentioned earlier, revenue outside of our iPhone business grew by almost 19 percent year-over-year, including all-time record revenue from Services, Wearables and Mac. Our non-iPhone businesses have less exposure to emerging markets, and the vast majority of Services revenue is related to the size of the installed base, not current period sales.

Services generated over $10.8 billion in revenue during the quarter, growing to a new quarterly record in every geographic segment, and we are on track to achieve our goal of doubling the size of this business from 2016 to 2020.

Wearables grew by almost 50 percent year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers; launches of MacBook Air and Mac mini powered the Mac to year-over-year revenue growth and the launch of the new iPad Pro drove iPad to year-over-year double-digit revenue growth.

We also expect to set all-time revenue records in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands and Korea. And, while we saw challenges in some emerging markets, others set records, including Mexico, Poland, Malaysia and Vietnam.

Finally, we also expect to report a new all-time record for Apple's earnings per share.

Looking Ahead

Our profitability and cash flow generation are strong, and we expect to exit the quarter with approximately $130 billion in net cash. As we have stated before, we plan to become net-cash neutral over time.

As we exit a challenging quarter, we are as confident as ever in the fundamental strength of our business. We manage Apple for the long term, and Apple has always used periods of adversity to re-examine our approach, to take advantage of our culture of flexibility, adaptability and creativity, and to emerge better as a result.

Most importantly, we are confident and excited about our pipeline of future products and services. Apple innovates like no other company on earth, and we are not taking our foot off the gas.

We can't change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results. One such initiative is making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone. This is not only great for the environment, it is great for the customer, as their existing phone acts as a subsidy for their new phone, and it is great for developers, as it can help grow our installed base.

This is one of a number of steps we are taking to respond. We can make these adjustments because Apple's strength is in our resilience, the talent and creativity of our team, and the deeply held passion for the work we do every day.

Expectations are high for Apple because they should be. We are committed to exceeding those expectations every day.

That has always been the Apple way, and it always will be.

Tim

Minnesota Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 21315

Reported Deaths: 890
CountyConfirmedDeaths
Hennepin7168539
Ramsey243797
Stearns195012
Nobles14692
Anoka121056
Dakota110235
Olmsted56210
Washington52729
Kandiyohi4681
Rice3862
Clay37324
Scott3582
Wright2531
Sherburne2142
Todd2040
Mower1891
Carver1742
Benton1672
Steele1410
Martin1255
Blue Earth1151
St. Louis11113
Freeborn930
Pine850
Winona7815
Carlton730
Nicollet695
Cottonwood640
Otter Tail600
Polk592
Watonwan560
Crow Wing561
Goodhue552
Itasca537
Chisago481
Dodge440
Chippewa420
Meeker420
Le Sueur411
Jackson390
Morrison380
Becker370
Murray350
Lyon340
Douglas290
Isanti280
McLeod270
Waseca250
Unassigned229
Rock210
Mille Lacs171
Fillmore171
Swift160
Wabasha160
Brown122
Beltrami120
Faribault120
Sibley120
Wilkin113
Cass112
Kanabec111
Norman110
Pipestone100
Marshall90
Pennington90
Pope80
Aitkin60
Wadena60
Koochiching60
Yellow Medicine60
Renville50
Mahnomen51
Lincoln50
Clearwater30
Big Stone30
Traverse30
Lac qui Parle30
Red Lake30
Redwood30
Grant20
Houston20
Roseau10
Hubbard10
Lake10
Kittson10

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 17533

Reported Deaths: 456
CountyConfirmedDeaths
Polk3774108
Woodbury262424
Black Hawk168239
Linn93575
Marshall87011
Dallas85714
Johnson6027
Muscatine54539
Wapello5144
Crawford4862
Tama39423
Scott3379
Louisa3347
Dubuque32316
Jasper25616
Buena Vista2430
Pottawattamie2126
Sioux2070
Washington1808
Wright1220
Allamakee1184
Plymouth1160
Warren1110
Story951
Poweshiek888
Mahaska856
Bremer676
Henry611
Clinton601
Des Moines551
Boone550
Cedar461
Guthrie433
Taylor390
Benton371
Jones360
Clarke350
Iowa330
Monroe334
Osceola320
Buchanan320
Shelby310
Clayton303
Marion290
Webster271
Hamilton260
Fayette260
Monona240
Madison241
Winneshiek230
Lee220
Cerro Gordo221
Davis200
Grundy190
Lyon190
Harrison190
Jefferson180
Floyd181
Mills160
Cherokee160
Butler150
Delaware150
Keokuk140
Greene130
Sac130
Hardin130
Humboldt130
Ida130
Howard120
Jackson120
Appanoose123
Hancock120
Audubon111
Cass110
Van Buren100
Clay100
Page100
Winnebago100
Carroll90
Dickinson90
Franklin80
Adair80
Chickasaw80
Emmet70
Union70
Kossuth70
Unassigned60
Lucas60
Montgomery60
Adams50
Ringgold40
Fremont40
Mitchell40
Pocahontas40
Palo Alto30
Worth30
Calhoun20
Wayne10
Decatur00
Rochester
Overcast
63° wxIcon
Hi: 78° Lo: 62°
Feels Like: 63°
Mason City
Few Clouds
66° wxIcon
Hi: 78° Lo: 64°
Feels Like: 66°
Albert Lea
Scattered Clouds
64° wxIcon
Hi: 75° Lo: 65°
Feels Like: 64°
Austin
Clear
66° wxIcon
Hi: 79° Lo: 67°
Feels Like: 66°
Charles City
Overcast
66° wxIcon
Hi: 79° Lo: 65°
Feels Like: 66°
Storms a brewin'
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Weather 5/25

Image

Honoring Veterans During a Pandemic

Image

Loud Mouth Brass Band spreads cheer to residents in Slattery Park

Image

Finding the silver lining during the pandemic

Image

Will Memorial Day cause a coronavirus spike?

Image

Can you catch Covid-19 from mosquitos?

Image

125 Live Restaurant partnership

Image

Taps in City Park

Image

100 Most traveled days in MN have begun

Image

Parade in the park

Community Events