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Apple's iPhone problem isn't going away
Apple sells a lot of AirPods. Its subscription products are doing great, and people are still buying up Apple Watches. But the company’s bread and butter is struggling. CNN Business’ Seth Fiegerman explains Apple’s (AAPL) new iPhone reality, and gets to the heart of Tuesday’s earnings report.
Apple's holiday quarter sales fell for the first time since 2000
The last time Apple’s holiday quarter sales fell, America was consumed with Bush v. Gore and Tom Brady had one completed pass in his career.
Apple’s sales fell 5% in the last three months of 2018 – and that’s the first time Apple’s sales dropped during the final quarter of the year since 2000.
In the last three months 2000, Apple posted $1 billion in sales, less than the $2.3 billion in revenue it made in the 1999 holiday quarter. (By contrast, Apple’s sales totaled $84.3 billion last quarter).
In 2000, Apple’s biggest product was the Macintosh. But it only sold 659,000 of them in the holiday quarter of 2000 – down from 1.4 million a year earlier.
Apple (AAPL) attributed the loss in sales to “continued deterioration in worldwide demand for personal computers,” price cuts and rebate programs to cull inventory. At the time, Apple was selling a lot of its new iMac computers and iBook laptops but still had a ton of Power Macs at stores that it had to get rid of.
The company also had introduced the G4 Cube in July 2000, its biggest flop of all time. Apple sold just 29,000 of them during the 2000 holiday quarter and had to sell them at a steep discount to get them out of stores.
*An earlier version of this post incorrectly stated Apple’s quarterly sales decline.
The number Apple doesn't want to talk about
For the first time in years, Apple (AAPL) did not disclose the number of iPhones sold as part of its quarterly earnings report. On a conference call for its last earnings report in November, Apple announced that it would stop disclosing the number of iPhones, iPads and Macs sold each quarter.
The move came as a shock to Wall Street. For years, this figure has been a focus among industry watchers – and it only seemed to go up, up, up. In more recent quarters, however, iPhone shipments have flatlined or even declined.
On Tuesday, Apple said iPhone revenue for the quarter fell 5% amid weakness in China. (See correction, below.) The figure suggests a decline in the number of iPhones sold.
Unlike other quarters, however, Apple won’t say exactly how much.
Correction: An earlier version of this post incorrectly stated Apple’s quarterly sales decline.
Why Tim Cook thinks iPhone sales are faltering
Apple (AAPL) CEO Tim Cook said on Tuesday’s earnings call that iPhone sales have struggled for three reasons. It’s important to understand what’s going on from the customer perspective at the point of purchase, he said:
1. Foreign exchange rates. Cook says the strength of the US dollar has hurt sales around the world.
2. Fewer subsides. iPhone subsidies are becoming less common around the world.
3. Apple’s battery replacement program. “For millions of customers we made it inexpensive and efficient to replace the batteries,” Cook said of the company’s year-old battery replacement program. The program was launched after it was discovered that Apple was slowing down older iPhones to stop them from shutting down unexpectedly. “We strongly believe it was the right thing to do for our customers.”
Apple's revenue, by the numbers
Here’s a quick glance at Apple’s revenue last quarter, courtesy of Neil Cybart, an analyst who follows Apple closely.
These are the parts of Apple's business that are growing
As iPhone sales continue to fall, Apple (AAPL) hopes that its services business can eventually more than make up the difference. Although we’re a long way from that happening, Apple services had a very nice quarter.
Revenue from the app store, Apple Music, Apple Care and other subscriptions rose 19% to a record $10.9 billion. That’s far less than the $52 billion Apple brought in from iPhone sales. But unlike the iPhone, it’s growing – strong.
Apple delivered solid growth from its wearables, home and accessories business too. Sales grew 33% from that business unit, which includes the Apple Watch, AirPods and HomePod.
Apple warns this quarter might not be great either
After resetting Wall Street’s expectations about last quarter, Apple (AAPL) had to level with Wall Street once more Tuesday: It’s not too optimistic about the current quarter either.
Apple said it expects sales to come in between $55 billion and $59 billion this quarter, below analysts’ median estimate of $59 billion, according to a survey of Apple analysts conducted by Refinitiv.
The company’s profit will be pinched too. Apple expects its gross margin to come in between 37% and 38%, below Wall Street’s expectation of 38.1%. That’s also below the 38.3% gross margin Apple earned a year ago.
Investors weren’t overly concerned, perhaps because the guidance wasn’t quite as bad as some had feared: The stock was up 3% in after hours trading.
Apple's iPhone sales fall 15%
Apple’s (AAPL) first quarter 2019 earnings results, by the numbers: Apple said Tuesday that its sales for the all-important holiday quarter hit $84.3 billion. The figure was slightly better than Apple had warned investors to expect earlier this month, but nonetheless represented a 5% decline from the same quarter a year ago.
The sales decline was driven by a dip in iPhone sales, which Apple CEO Tim Cook previously said was primarily due to a slowdown in China. Apple’s iPhone revenue for the quarter fell 15%, to $51.98 billion.
Apple’s sales in China also fell considerably. It reported revenue in the region of $13.17 billion, down from $17.95 billion in the same period a year ago.
Apple stock initially rose as much as 3% in after hours trading Tuesday following the report.
Apple's shares are down 30% since the last time it reported earnings
The last time Apple reported earnings results, it was the most valuable public company in the world. Today, it’s fourth on the list.
What a difference three months makes.
Apple (AAPL) stock is down about 30% since the last time it reported earnings in early November. Investors are worried about the future of the company’s core business: the iPhone.
On a conference call with analysts for the last earnings report, Apple announced it would stop reporting how many iPhones, iPads and Macs it sells each quarter. The move sparked fears that Apple expects iPhone shipments to begin declining. Less than two weeks later, iPhone parts suppliers began cutting sales outlooks, which raised more alarms.
Then came the biggest red flag of all. On Jan. 2, Apple CEO issued a stark warning to investors that the company would miss its revenue target for the final quarter of 2018 by a wide margin – as much as $9 billion below the high end of its earlier guidance.
The reason: weak iPhone sales, primarily in China.
Markets drift mostly lower on earnings trouble; Oil bounces on Venezuela crackdown
Wall Street closed mostly lower on Tuesday, pulled down by tech and telecom stocks on concerns about earnings.
The Nasdaq declined 0.8%
The S&P 500 lost 0.2%
But the Dow gained 53 points
A number of major companies reported mostly disappointing results and guidance. Harley-Davidson (HOG) fell 5% after its profit missed the mark. Verizon (VZ) declined 3% on a sales miss. Nvidia (NVDA) lost another 5% following its Monday sales warning.
But 3M (MMM) and Whirlpool (WHR) bounced back, closing higher despite lowering their outlooks.
US oil prices jumped 2.5% to $53.31 a barrel in response to the Trump administration’s crackdown on Venezuela.
The British pound fell sharply against the US dollar after Parliament passed two of the seven Brexit amendments.
Investors were also paying attention to another dip in US consumer confidence, which fell in January to the lowest level since July 2017.
China slowdown isn't hurting LVMH
French luxury giant LVMH on Tuesday posted record annual sales for 2018 and hiked its dividend by 20% despite economic headwinds in China.
LVMH (LVMH), which owns 70 luxury brands including Louis Vuitton, Christian Dior, Fendi and Givenchy, said in a statement that sales increased 10% last year to €46.8 billion ($53.5 billion). That performance met analyst expectations.
Sales in Asia (excluding Japan) increased 15% in 2018, the company said. That compares to growth of 17% in the previous year. LVMH said its wine and drinks business was particularly strong in China.
Chinese shoppers are now responsible for a third of global luxury sales, according to a report by the consultancy Bain. LVMH was the first major luxury company to report full year results for 2018, and investors were looking to see whether slower growth in the world’s second largest economy would reduce demand for handbags.
LVMH appears to have dodged the slowdown. The company said that sales in the fourth quarter of 2018, when Chinese economic data was weakest, increased 9% over the previous year to €13.7 billion ($15.6 billion).
China’s economy grew at the slowest pace in nearly three decades in 2018, and the ongoing trade war with the United States could make this year even worse. Apple (AAPL) warned earlier this month that it would miss its revenue target for the final quarter of 2018 by at least $5 billion due to weak demand for iPhones in China.
Markets mixed at midday
US markets are trading mixed following a relatively quiet morning on Wall Street.
Here’s where they stand as of Noon ET:
- Dow is up 78 points.
- Nasdaq is down 55 points.
- S&P is off 0.16%.
Investors remain nervous about uncertainty surrounding the US-China trade talks and mixed earnings reports from major companies, including Harley-Davidson (HOG) and 3M (MMM).
Apple (AAPL) shares slipped .11% ahead of its earnings report after the bell.
Consumer confidence falls again
Consumer confidence dropped again in January, the Conference Board reported Tuesday, in its third consecutive month of decreases.
The decline came mostly in the component of the survey that measures future expectations. The dip was likely caused by stock market turmoil and the now-ended government shutdown, rather than a seriously unstable economy, according to Lynn Franco, Conference Board director of economic indicators.
Still, the reading reinforces other data that indicates a darkening mood among businesses and consumers, including the University of Michigan’s consumer sentiment index, which dropped to the lowest level of the Trump presidency in January.
Markets start mixed despite earnings duds; Oil pops on Venezuela sanctions
Wall Street mostly shrugged off a series of earnings disappointments and new signs of US-China tensions.
Harley-Davidson (HOG) declined 7% on weak shipments and a dip in sales. Whirlpool (WHR) fell 5% after lowering its guidance. Verizon (VZ) lost 3% on disappointing sales. GameStop (GME) plunged 23% after the video game retailer canceled its plan to find a buyer.
US oil prices jumped 2.6% to $53.32 a barrel after the Trump administration announced sanctions on PVDSA, Venezuela’s state-owned oil company.
Xerox shares jump on strong 2019 outlook
Copy that! Xerox (XRX) is forecasting a healthy 2019, bucking the trend of several other big companies that have said they expect the year ahead to be difficult. Shares spiked nearly 7% in premarket trading.
The printing conglomerate expects this year’s profit to fall in the range of $3.70 to $3.80 per share, which is well above analysts’ expectation of $3.53 per share.
GameStop gives up on trying to find a buyer
It’s game over for GameStop’s (GME) quest to find a buyer.
The stock tumbled 22% in premarket trading after the video game retailer announced that it “terminated efforts to pursue a sale of the company due to the lack of available financing on terms that would be commercially acceptable to a prospective acquirer.”
GameStop also said it would continue to search for a permanent CEO.
As part of GameStop’s attempt to revive its struggling business, the company reported Tuesday that it completed the sale of its Spring Mobile division. The transaction resulted in about $735 million in cash that may be used to pay down debt, repurchase shares or reinvest in GameStop’s core business.
De Beers sales plunge 25%
De Beers, one the world’s largest diamond producers, said this month’s rough diamond sales plunged 25% to $505 million.
De Beers CEO Bruce Cleaver blamed the weaker sales on “higher than normal” sales for December and the weaker sales of lower-cost diamonds. It’s perhaps another sign of a slowing global economy.
The company is also facing increasing competition from companies that produce lab-grown diamonds. De Beers announced last May it will begin selling synthetic diamonds for a fraction of the price of diamonds mined from the ground.
This week's GDP report will be delayed
The report on America’s fourth-quarter GDP, which was scheduled to be released Wednesday, is going to be delayed because of the now-ended partial government shutdown.
The US Bureau of Economic Analysis, which publishes the GDP report, has not yet said when it will come out.
Employees went back to work Monday, but it will take time to finish the report as several data collection agencies have been closed for more than a month.
The report on GDP is the broadest federal government analysis of the economy. It produces quarterly and annual measures of the growth, or weakness, of the US economy. It comes out every month, and includes updates on each quarter.
Harley-Davidson stock hits the skids
Harley-Davidson (HOG) had another rough quarter sending shares as much as 8% lower in premarket trading.
The motorcycle maker reported earnings of 17 cents per share per — 11 cents less than what analysts were expecting. Revenue for the fourth quarter sank nearly 9%.
US and worldwide sales continued to decline.
Harley expects to ship 217,000 to 222,000 motorcycles this year, below the 228,000 it shipped in 2018.
The company remains bullish on its plan to attract new and younger riders despite the sagging shipments.
“During 2018 we met or exceeded all of the More Roads plan milestones we set out to achieve,” CEO Matt Levatich said in a release. “The groundwork for an exciting future is being built in real time, and that’s clear for riders today and Harley-Davidson riders of tomorrow.”
3M cuts 2019 guidance
Add 3M (MMM) to the growing list of companies warning of weaker-than-expected 2019.
The manufacturing conglomerate expects this year’s earnings to come in 15 cents per share below its previous outlook, sinking from a range of $10.60 - $11.05 to the range of $10.45 - $10.90 per share.
Still, 3M’s CEO said in a release the company is “positioned for a successful 2019.”
Its fourth-quarter earnings also fell just short of analysts’ expectations.
Shares are down more than 2% in premarket trading.
