Apple Warns of December Quarter Revenue Shortfall, Blames China, Stock Drops After Hours – Here’s What You Need to Know

Apple issued a rare revenue warning on Wednesday after the markets closed. In a long letter, CEO Tim Cook told investors and Wall Street that blah blah blah, China, blah blah blah, we expected some of this, blah blah blah.

You can read the blah blah blahs yourself in Apple’s full letter to investors. I laid out the things you probably want to know below.

What You Need to Know

So here’s the deal. Apple said “headwinds” in Greater China were greater than the company anticipated. Because of that, Apple lowered its guidance for the already completed quarter—the company’s fiscal 1st quarter—from a bit more than US$90 billion in revenue to $84 billion. Wall Street consensus estimates were  for revenues of $91.3 billion.

This is a rare miss for Apple under CEO Tim Cook. While the company’s revenue growth has slowed in recent years, the company nails its guidance quarter after quarter. Not surprisingly, $AAPL took it in the kisser in after-hours trading, dropping some $11.88 (-7.52%) to $146.04. After-hours trading tends to be more exaggerated than regular session trading, but it’s a safe bet traders will punish the stock Thursday morning.

Apple’s stock woes are exacerbated by the company’s decision to stop reporting iPhone unit sales. Wall Street was already spooked by that decision, sending $AAPL down many tens of dollars fearing Apple was doing so due to flat or falling iPhone unit sales. As I’ve noted on a few podcasts, this is a self-inflicted wound on Apple’s part. To a certain extent, that wound may now be festering.

In addition, while Apple is plagued by year-round supply chain tea leaf reports that iPhone-is-finally-a-failure, this guidance reduction will be seen as proof that iPhone XR is a flop. And while Tim Cook’s letter offers up a lot of excuses and “look at these things we did right,” investors aren’t likely to have it.

In short, Apple and broader political and economic factors have concocted a perfect storm to pummel the stock, despite the reality the company still makes more money than a significant chunk of the Fortune 500 combined.

On the other hand, Apple makes more money than a significant chunk of the Fortune 500 combined. That does serve as a floor for the stock. Wall Street will be watching Apple’s Q2 guidance like a hawk looking for weakness or strength, and that will be the major influence on Apple’s stock.

Bryan’s Unasked for Advice

So yeah, China. Sure. I get it. But how about this? Make more Macs. Stop ratcheting up iPhone prices to compensate for declining unit sales. Stop pulling features out of macOS. Stop making upgrade pricing insultingly high, especially on Macs. Stop exiting businesses like displays and AirPort/Wi-Fi and make a nice, modern Apple mesh system.

In short, make more stuff that fits within the ecosystem, and Apple might be surprised at how that adds up to more revenue.

What I’m hoping is that this December quarter revenue miss will light another fire under Apple’s corporate butt. Apple is at its best when its hungry, and the company hasn’t been hungry in a long, long time.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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