Citing ‘deterioration’ in China, Apple warns sales will fall short

Months after unveiling two new iPhones in time for the holiday season, Apple CEO Tim Cook said in a note to investors that the company had lowered its revenue guidance to $84 billion, compared to its previous estimate of revenue between $89 billion and $93 billion. Brent Lewin/Bloomberg News

Apple on Wednesday fed fears that the global economy could be slowing faster than anticipated by announcing it would miss its first-quarter revenue estimate, a rare misfire that the company blamed on unexpected challenges in the Chinese economy and the trade conflict between the United States and China.

Months after unveiling two new iPhones in time for the holiday season, Apple CEO Tim Cook said in a note to investors that the company had lowered its revenue guidance to $84 billion, compared to its previous estimate of revenue between $89 billion and $93 billion. The news sent Apple’s stock plunging after hours.

In explaining the change, Cook said Apple “did not foresee the magnitude of the economic deterioration” in markets including greater China. Cook said that most of the revenue shortfall to the company’s initial guidance “occurred in greater China across iPhone, Mac and iPad.” Along with slowed growth there in the second half of last year, Cook said that 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,” Cook said.

The announcement is likely to add further volatility to the stock market, where U.S.-technology stocks have helped drive a major correction in recent months. It also comes as the Trump administration and the Chinese are trying - without success, so far - to resolve a simmering trade conflict that has put hundreds of billions of Chinese exports to the United States under tariff.

While economists have suspected that the Chinese economy has been clear, it has not been clear how much that might translate into a decline in global economic growth that would hit the United States. The Apple earnings miss suggests that the effects of the China slowdown could be reaching U.S. shores fairly quickly.

The earnings miss shows how the trade war is enveloping one of the biggest U.S. brand names, which had worked hard to gets its product exempted from tariff lists released by the Trump administration.