Published: Mon, January 07, 2019
Markets | By Jeffery Armstrong

Apple Inc. (AAPL) is Stokes Capital Advisors LLC’s 7th Largest Position

Apple Inc. (AAPL) is Stokes Capital Advisors LLC’s 7th Largest Position

Apple cut its revenue outlook for the latest quarter on Wednesday, citing steeper-than-expected "economic deceleration" in China and emerging markets.

"While Tim Cook blamed a slowing China economy and trade tension, we maintain that in our opinion the iPhone ASP is the biggest problem given uninspiring specs and rising competition in China and in Europe", the analysts wrote. Experts say many Chinese consumers are likely to reject Apple's iPhone price increases and instead buy less costly models from competitors.

The statement from one of the world's largest companies will further rattle investors already anxious about the slowing Chinese economy.

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Sales of Apple's cheaper iPhone XR have also been a thorn in Apple's side since it hit stores in late October. Some of the company's iPhones have passed the $1,000 mark while Chinese brands look to fill the mass market. According to the Los Angeles Times, Apple's announcement "stoked investors' fears that China's economy, the world's second largest, is losing steam and that the U.S".

The shortfall means that Apple is now shrinking as a company, and will report its first decline in sales in more than two years when it posts its quarterly financial results in a few weeks' time. Apple's market share has dropped to 7.5% in the third quarter from 11.2% in the first quarter, while Huawei has been in the lead with an average market share of 25.5%, according to IDC. Apple's stock fell an additional 9.3 percent Thursday morning.

Apple has slashed its revenue forecasts by billions of dollars after iPhone sales fell well short of expectations, causing shares in the company to plunge.

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But Apple has held firm on its premium pricing strategy in China despite the risk of a slower economy. "In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad", Cook writes in the letter. Apple's top models, iPhone XS and iPhone XS Max, shipped in the fourth quarter of 2018 - placing the channel fill and early sales in that quarter, whereas a year ago iPhone X shipped in the first quarter of 2018, placing the channel fill and early sales in the December quarter.

"Apple makes their product in China".

Market jitters even extended briefly to the Brexit-battered pound, which tumbled to a 21-month low close to $1.24 overnight against the USA dollar in a "flash crash" triggered by an exodus from currencies considered riskier - before very quickly recovering the losses to return to around $1.26. Apple provided some of the starkest evidence of the negative consequences of the US-China trade war.

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Apple said other issues impacting its revenue readjustment included foreign-exchange headwinds, weaker-than-expected iPhone upgrades, and customers taking advantage of a battery-replacement offer. The truth remains that the iPhone has always been Apple's core business and if Apple can't sell enough of them, the whole company struggles.

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