Apple Faces Potential Investor Lawsuit for Not Warning of Weak iPhone Demand

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"China's economy began to slow in the second half of 2018".

"Beyond China, we don't see strong evidence of a consumer slowdown heading into 2019, but we just flag to investors that we believe Apple's replacement rates are likely much more sensitive to the macro now that the company is approaching maximum market penetration for the iPhone".

Apple posted sales of $88.3 billion in the fiscal first quarter a year earlier, so the new forecast would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011.

Trading in the company's shares were temporarily halted as Tim Cook, Apple's chief executive, issued a letter to shareholders explaining the reason for the change. 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, United States dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.

"The argument could be made that they to some extent priced themselves out of the market", said Tom Forte, an analyst at D. A. Davidson.

China's smartphone market has dropped sharply this year, with Apple and South Korean rival Samsung Electronics Co Ltd leading the fall, even as some domestic peers have performed more strongly.

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This marked the first time Apple had issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007.

Samsung said last month it would cease operations at one of its mobile phone manufacturing plants in China, after seeing its share of the Chinese market drop to 1 percent in the first quarter of 2018 versus 15 percent in mid-2013. When the suspension on selling was lifted, Apple shares fell 7.45%. And here we had thought it was competition from China-based technology firms.

But the biggest problems came from lackluster sales in China and equally disappointing iPhone upgrades. With Apple suddenly launching several new products in the quarter-including iPhones, Apple Watches, and Macs-it experienced "supply constraints" that would "gate" (slow) sales of "certain products" during the quarter. The new forecast from Apple expects revenue to be as low as $84 billion, blaming China but also the slowing number of iPhone upgrades in other countries. But Cook specifically said he "would not put China in that category" of countries with troubled growth.

Apple has recognized its pricing in China may be too high, expanding a recent iPhone trade-in promotion from the U.S.to the region at the end of December.

If Apple racks up some $84bn by the end of the first quarter, it will be a decrease of more than $4bn from the same period previous year, when it pocketed $88.3bn.

In his letter, Cook said Apple has $130 billion in net cash and that it intends to continue its efforts to reduce that cash balance to net zero, which the company has so far accomplished through dividend increases and share buybacks.

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