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Apple warns on holiday sales amid weakness in emerging markets

Reuters logo Reuters 11/1/2018 By Stephen Nellis

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Apple Inc on Thursday warned that sales for the crucial holiday quarter would likely miss Wall Street expectations, which Chief Executive Tim Cook blamed on weakness in emerging markets and foreign exchange costs.

The weak forecast by the world's most valuable technology company sent shares down as much as 7 percent, taking roughly $70 billion off Apple's market value and deepening concerns for technology companies set by results from Amazon.com Inc and Google parent Alphabet Inc.

Apple said it expects between $89 billion and $93 billion in revenue for its fiscal first quarter ending in December, with a midpoint of $91 billion coming in below Wall Street expectations of $93 billion, according Refinitiv data.

Executives said they also would quit giving the number of iPhones, iPads and Mac computers in the future, leading to a further drop in the share price, since investors closely follow the figures.

Click here to see Apple's (APPL) latest share price

For the quarter ended in September, Apple brought in $62.9 billion in revenue and $2.91 per share in profits, beating expectations of $61.5 billion and $2.79, respectively.

In an interview with Reuters, Cook said some of the forecast was explained by Apple releasing its top-end iPhone models, the XS and XS Max, in the fiscal fourth quarter. Cook also said foreign exchange rates would have a $2 billion negative impact on Apple's sales forecast.

Apple was unsure whether it can make enough new iPhones, Apple Watches, iPads and Mac models it released in recent weeks, Cook told Reuters. Apple is widely expanding the use of its facial recognition unlocking system in iPhones and iPads, which uses special lasers that are still produced by only a handful of suppliers.

Cook said that Apple is "seeing some macroeconomic weakness in some of the emerging markets." He later told investors that weak markets included Brazil, India, Russia and Turkey.

Elazar Advisors analyst Chaim Siegel said that China trade issues could be making it difficult for Apple to get the supplies it needs. "As for emerging markets slowing, that's also contagion from China. Both trade war issues coming to reality," he said.

But Cook stressed that Apple was happy with its performance in China, where revenue grew 16 percent to $11.4 billion, the fifth quarter in a row the company has had double-digit growth in the region.

Apple's cautious forecast could accelerate investor fears that have in turn erased stock market gains for much of the year. At market close on Thursday, Apple shares were up more than 25 percent for the year - supported by purchases by Warren Buffett and a $100 billion share buy-back program - while the Nasdaq Composite Index is nearly flat for the year.

"I think they've always been fairly conservative with the guidance they've given out," said Trip Miller, managing partner at Apple shareholder Gullane Capital Partners. "I hope that's the case here."

Apple sold 46.9 million iPhones in the fiscal fourth quarter, missing analyst expectations of 47.5 million iPhones, according to FactSet. But the average selling price of iPhones was $793, well above analyst estimates of $750.78, according to FactSet.

Analyst Walter Piecyk from BTIG said that the strength in average selling price in the quarter just ended suggested that Apple was targeting unit sales behind Wall Street estimates.

Apple said revenue from services, which includes iCloud, the App Store and Apple Music, reached $10 billion, in line with analyst estimates. Apple investors have been increasingly focused on growth in the company's services business as growth in the global market for smartphones levels off in terms of unit sales.

Apple forecast a tax rate of 16.5 percent for the December quarter, above analyst expectations of 15.9 percent, according to data from Refinitiv.

"There's going to be a minimum tax on foreign earnings coming from the new tax legislation" passed in the United States, Apple Chief Financial Officer Luca Maestri told Reuters.

For its full fiscal 2018 ended in September, Apple reported revenue of $265.6 billion and profits of $11.91 per share, beating analyst estimates of $264 billion and $11.79 per share.

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