People are buying less iPhones compared with previous years, putting Apple's usually sizable iPhone profits in jeopardy.
CEO Tim Cook has published a letter to investors cautioning of weaker-than-expected earnings for the first financial quarter, citing "fewer iPhone upgrades than we had anticipated" as the reason.
iPhone Sales Weaken
The underwhelming demand primarily came from China, Cook states, although the same can be said of iPhone sales "in some developed markets" as well. He offers a number of explanations for the weakened demand. One is the earlier launch of the iPhone XS and iPhone XS Max compared with that of the iPhone X. Cook also cited the strength of the U.S. dollar and supply constraints because of the many products Apple this fall. Finally, Cook also invoked overall economic weakness in some markets as the reason for dipped iPhone demand.
At the end of the day, however, it all comes down to one core factor: people aren't buying that many iPhones anymore.
Despite the disappointing numbers, Cook notes that other divisions of Apple have risen by almost 19 percent in terms of year-over-year growth. But the fact remains that the iPhone is Apple's number 1 cash cow, and if people don't buy as many units as Apple anticipates, the entire company is affected.
Apple Looks Forward
Looking beyond the setback, Cook says Apple is confident the Chinese market will warm up to iPhones eventually.
"Despite these challenges, we believe that our business in China has a bright future," he says. "The iOS developer community in China is among the most innovative, creative and vibrant in the world. Our products enjoy a strong following among customers, with a very high level of engagement and satisfaction."
Apple is still one of the most profitable companies in the world, and Cook made sure to remind investors of that.
"As we exit a challenging quarter, we are as confident as ever in the fundamental strength of our business," he says. "We manage Apple for the long term, and Apple has always used periods of adversity to re-examine our approach, to take advantage of our culture of flexibility, adaptability and creativity, and to emerge better as a result."
Those words might calm the fears of some investors, but the fact that Apple's revised Q1 guidance forecast has dropped down to $9 billion still seems troubling. Also, Apple's stock dropped by nearly 10 percent once trading resumed.
"Expectations are high for Apple because they should be. We are committed to exceeding those expectations every day," Cook says.