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Apple Reveals It Underestimated Challenges in China, Revises Guidance for Holiday Quarter

Apple revised its guidance for the holiday quarter on Wednesday, with CEO Tim Cook telling investors that the company had underestimated challenges in China. “We did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook wrote in a letter to investors.

As a result, Apple told investors that it expects to generate $84 billion in its fiscal Q1, which ended on Dec. 29. The company had originally projected to bring in $91 billion.

After-hour trading of Apple’s stock was briefly halted pending the announcement. Share prices sank 7% following the revised guidance.

Cook detailed in his investor letter that economic growth in China had been the lowest in 25 years, which apparently hit phone sales particularly hard. He also blamed the ongoing trade war between the U.S. and China for some of the shortfall, writing:

“We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.”

However, the revised guidance also hinted at another problem: The company simply didn’t sell as many iPhones as expected. “Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline,” Cook wrote, adding that all other revenue lines saw a 16% year-over-year growth.

And it wasn’t just China: The company also saw weaker-than-expected demand for its new iPhone models in other markets. “In some developed markets, iPhone upgrades also were not as strong as we thought they would be,” wrote Cook.

Apple generated around 18% of its revenue in China during its fiscal 4th quarter, which ended on Sept. 31. Company executives had been sharply critical of the trade war between the two countries in the past, and Apple warned in a public filing in September that tariffs could ultimately make its products more expensive in the U.S. as well.

“Our concern with these tariffs is that the U.S. will be hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers,” the company stated at the time.

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