Apple Slashes Revenue Forecast, Admits iPhone Sales Weakness

The rumor mill has been churning over Apple’s iPhone and the company’s strength or weakness this quarter. Yesterday, Apple CEO Tim Cook released a letter to investors warning that the company would come up short in Q4 2019 compared with its own previous revenue guidance. He also went into some detail on what Apple believes are the reasons for its own shortfall.

Previously, Apple reported that it expected between $89B – $93B in revenue for Q4 2018 (via Hot Hardware). The company has since revised this downwards, to $84B. That’s $5B below its previous low-end target and $9B below its top-end estimate. As reductions go, it’s a doozy.

Cook chalks the miss up to multiple issues, some of which hold more water than others. Baked-in problems include launching the product earlier in the cycle and a strong US dollar — and Cook would’ve known about both of these prior to setting Q4 expectations in the first place. Ditto for the supply constraints that Cook claimed impacted Apple’s overall shipments. He writes: “Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained,” and indicated that all of these were “broadly in line [with] expectations.”

Apple claims that economic weakness in emerging markets is primarily responsible for its unexpected decline in sales, including China. There’s external evidence to suggest this is true. Reports from the past year have highlighted a decline in Apple’s market share in China and suggested that the company could be pinched by declines in overall demand for products there. This was forecast by some analysts as far back as November.

According to Tim Cook, the decline in Chinese sales accounts for more than 100 percent of its revenue decline. Low GDP growth in China and the trade war with the US both played a part, but Cook states that all of the decline is attributable to Apple iPhone sales and that most of those sales (didn’t) occur in China. None of the other countries are discussed by name.

Also, It’s Your Fault

Cook does take the time to single out a special group of people he feels are responsible for his company’s failure to make more money: People who replaced their batteries. One cause for Apple’s economic woes, he writes, is “some customers taking advantage of significantly reduced pricing for iPhone battery replacements.”

This is a rather dubious argument for Apple to make. After years of being accused of deliberately making its products slower to push people towards buying new phones, Apple decided to actually make people’s products slower without telling them it had done so. It took this step after failures in its own manufacturing process caused damage to its batteries.

Once consumers realized they were being screwed out of performance they paid for, Apple’s response was to offer $29 battery replacements if nothing else was wrong with your phone. If you brought in a phone that was otherwise damaged (or deemed to be damaged by Apple), they’d sometimes charge you to repair that additional damage as well, even if had nothing to do with the battery.

Having been caught crippling user devices without notification, Tim Cook has the temerity to blame user desire not to be screwed out of devices that still have years useful life as a reason for his company’s poor financial performance. Granted, the CEO doesn’t pretend this constitutes the majority of the difference, but the point is made. If Apple misses its earnings targets, it’s in part because customers had the gall to insist on being made whole after Apple lied by omission about performance throttling.

If you want to understand why customers might be looking to companies other than Apple, it’s simple. Apple has spent the past few years declaring what its customers don’t want.

Customers, according to Apple, don’t want headphone jacks. They don’t want small phones. They don’t want new devices that cost less than $750. They don’t care if their new devices lack features other Android products offer. Apple customers don’t want devices that inform them whether they’re throttling performance to save the battery. Apple customers don’t want devices that keep working without succumbing to hardware failures like touch disease.

Apple customers don’t want affordable AppleCare prices and they don’t want affordable out-of-warranty repair rates. They don’t want keyboards that work. They don’t want affordable workstations on reasonable update cycles. They don’t want non-buggy software. They don’t want smart speakers that function outside the Apple ecosystem. They don’t want laptops with UEFIs that work out of the box without severe throttling. They don’t want to fix their own equipment or to be allowed to choose which repair service works on their own hardware. Apple customers don’t want undamaged iPad Pros. They actually want iPad Pros that are bent on arrival, even though Apple products that bend easily from the outset have been demonstrably proven to fail more quickly. If you don’t think this is normal, it’s because you have the wrong set of expectations. Alternatively, you may lack courage.

What Apple customers want, according to Apple, is to pay more money every year forever, regardless of whether the products it designs justify the premiums it wants to charge for them. And maybe — just maybe — after years of being told that they don’t want affordable, well-built products with competitive features and capabilities, people are starting to push back and find other equipment to buy.

Blame macroeconomic conditions. Blame currencies. Blame the lack of carrier subsidies. Blame trade war tensions. Blame varying customer tastes. But before you blame people for daring to take advantage of a battery program you created to fix your own epic failure, maybe take a moment to acknowledge your own culpability. Maybe the reason people saw battery upgrades as a better investment than a new $750 phone is because, after years of relentless price increases and increasingly anemic feature updates, people are more willing to keep using the excellent handheld computer they already purchased as opposed to paying top dollar for a marginal set of new features and capabilities.

Just a thought.

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Apple Slashes Revenue Forecast, Admits iPhone Sales Weakness

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