Dropping iPhone Demand in China Shows Growing Buyer Concerns

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In an open letter to investors published last night, Apple cut its revenue forecast for the busy Christmas quarter by 7.8 percent.

The news caused Apple stock to trade sharply lower. Over the years there's been a great deal of chatter around the subject of "planned obsolescence", and here we have Apple essentially confirming that this is indeed part of the business model.

Apple said that it expects weak iPhone sales in other emerging markets, driving down revenue despite some positive signs in developed markets and in its other products and services. Sales in China, which The Wall Street Journal says account for nearly 20 percent of global sales, have dropped amid President Donald Trump's trade war with Beijing.

David Dollar is a China specialist at the Washington-based Brookings Institution.

Growth in China previous year is set to be the weakest since 1990. But Cook acknowledged that there's sluggish iPhone demand in plenty of other places, too. "People are anxious about losing jobs", she said.

Apple's lower prediction added to concerns that the iPhone maker will keep losing ground in the important Chinese market.

Estimates from research company IDC showed smartphone shipments to China fell 10 percent from a year earlier in the quarter that ended in September. It made up about 60 percent of the company's revenue in the last quarter reported. The world's second largest economy is feeling the effects of a darkening trade outlook and government attempts to rein in risky lending after a rapid rise in debt levels. Cook said the iPhone "accounts for all of our revenue shortfall".

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The slump is a setback for the ruling Communist Party's efforts to nurture self-sustaining, consumer-driven economic growth and wean China from its reliance on exports and investment.

The warning rattled already-volatile United States markets, further feeding worries about global economic growth that have dragged on stocks in recent weeks and turned 2018 into the worst year since the financial crisis for Wall Street.

"No, I'm not", Trump said after he was asked at a White House news conference about Apple's revenue warning this week. "To me, it's more clues about what's going on with the global economy".

"Our analysis suggests that iPhone ASPs (now around $800) are almost 5x higher than the average non-Apple smartphone globally and that price elasticity is very real", Sacconaghi wrote.

The weakening will also likely slow the Federal Reserve's interest rate hikes, which will weaken the USA dollar. But that was thanks partly to exporters rushing to beat further American duty increases - a trend that is starting to fade.

He also cited other factors that contributed to the drop in iPhone revenues such as consumers adapting to a world with fewer carrier subsidies, price hikes resulting from a stronger US dollar, and lower price for iPhone battery replacements.

In smartphones, that includes Huawei, Oppo, Vivo and Xiaomi.