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Inside Apple’s Soft Revenue Guidance for the First Quarter

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Apple’s soft guidance

Apple (AAPL) stock has fallen around 15% since November 1 when the iPhone maker reported its fourth-quarter results and issued disappointing guidance for revenues. The company now expects revenues for the first quarter of fiscal 2019 to lie in the range of $89 billion to $93 billion, down from the analyst estimates of $93.02 billion.

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Fourth-quarter results

Apple posted earnings of $2.91 per share on revenues of $62.9 billion in the fourth quarter, beating the estimates of $2.78 per share on revenues of $61.57 billion. Though the company reported lower-than-expected iPhone unit shipments of 46.9 million in the quarter (down from 47.5 million units expected), it increased iPhone sales on the back of boosting its iPhones average selling prices. iPhone’s average prices were $793 in the quarter, up 28% year-over-year and were above the Wall Street estimates of $750.78.

Demand for new iPhone models

Apple witnessed strong initial sales for its premium iPhone models: the iPhone XS, iPhone XS Max, and iPhone XR, which were unveiled a week before the end of the September quarter. However, the company later warned of uncertainties related to the demand-supply of its phones, which was accounted for in the guidance. Then, last week, two Apple suppliers, Qorvo (QRVO) and Lumentum (LITE), also lowered their outlook due to softness in iPhone-related orders.

Impact of tariff war on Apple

China (FXI) is the second-largest market for iPhones after the United States since the launch of the iPhone 6 series. In the fourth quarter, the Greater China region contributed around 18.1% to Apple’s total revenues, which grew 20% in the quarter. Apple’s revenue from Greater China rose 16% YoY to $11.4 billion in the fourth quarter.

Reportedly, Apple was concerned that the tariff war between the US (SPY) and China might increase the cost of its products like Apple Watch, AirPods, Apple Pencil, HomePod, Mac Mini and adapters, and chargers. However, the tariff imposed might not hurt the iPhones imported from China, which drives most of Apple’s revenues.

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