Apple Priced Itself Out of Shrinking Chinese Smartphone Market

Virginia Carson
January 5, 2019

Sales in China, which The Wall Street Journal says account for nearly 20 percent of global sales, have dropped amid President Donald Trump's trade war with Beijing.

Apple shares slid some 7.6 per cent in after-hours trade on the news.

CEO Tim Cook said in a letter to shareholders Wednesday that demand for iPhones is waning and revenue for the last quarter of 2018 will fall well below projections, a decrease he traced mainly to China. "It symbolizes how deep China's economic problems are, and we can connect the dots right back to the trade war".

Apple is the target of nationalist sentiment over the arrest of Huawei's chief financial officer in Canada at the behest of the U.S. on alleged Iran sanctions violations.

A woman browses her iPhone as she walks by a mural depicting an iPhone and Chinese people buying a smartphone to communicate with family members, at a subway station in Beijing. Over the years there's been a great deal of chatter around the subject of "planned obsolescence", and here we have Apple essentially confirming that this is indeed part of the business model. Technology companies and other major exporters, including heavy-machinery companies, also took big losses.

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Business Insider reports that the NY law firm Bernstein Liebhard has begun to attempt to gather support from Apple investors for a class-action lawsuit against the tech giant over their failure to warn investors about the lack of iPhone demand.

Apple Inc shares tumbled as much as 10 percent on Thursday after the iPhone maker blamed weak China demand for its revenue shortfall in the holiday quarter, a clear sign of the company's struggles in the world's largest smartphone market.

Apple did not immediately respond to a request for comment on Thursday. "I am very bullish on the country and the people and our ability to do well there", he said during the company's most recent earnings call in November.

It may be tempting to pick up Apple on this dip, but investors should be patient as the United States economy looks poised for a sharp slowdown in 2019 and 2020.

He also pointed to a lower than expected number of iPhone upgrades in some developed markets and said the tech firm had launched an initiative to make it easier to trade in handsets in stores, finance the purchase over time, and get help transferring data.

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Meng was arrested at the request of United States prosecutors and faces extradition on charges of violating sanctions on Iran. The other two are a Canadian diplomat on leave and a Canadian businessperson trading with North Korea.

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

The update suggested a disappointing figure for iPhone sales, the key driver of revenue and profit for the California tech giant.

"I am not concerned for the company, but it's likely investors will not see the company value it was at until it can see a likely path to double-digit revenue growth", Moorhead said.

He added that Apple was performing well in a few emerging markets and could see record revenues in Malaysia, Mexico, Poland and Vietnam.

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