Apple CEO Tim Cook issues public letter to investors, lowers guidance

Apple today issued the following public letter to investors:

To Apple investors:

Today we are revising our guidance for Apple’s fiscal 2019 first quarter, which ended on December 29. We now expect the following:

• Revenue of approximately $84 billion
• Gross margin of approximately 38 percent
• Operating expenses of approximately $8.7 billion
• Other income/(expense) of approximately $550 million
• Tax rate of approximately 16.5 percent before discrete items

We expect the number of shares used in computing diluted EPS to be approximately 4.77 billion.

Based on these estimates, our revenue will be lower than our original guidance for the quarter, with other items remaining broadly in line with our guidance.

While it will be a number of weeks before we complete and report our final results, we wanted to get some preliminary information to you now. Our final results may differ somewhat from these preliminary estimates.

When we discussed our Q1 guidance with you about 60 days ago, we knew the first quarter would be impacted by both macroeconomic and Apple-specific factors. Based on our best estimates of how these would play out, we predicted that we would report slight revenue growth year-over-year for the quarter. As you may recall, we discussed four factors:

First, we knew the different timing of our iPhone launches would affect our year-over-year compares. Our top models, iPhone XS and iPhone XS Max, shipped in Q4’18 — placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1’18, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1’19, and this played out broadly in line with our expectations.

Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained.

Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.

In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated.

These last two points have led us to reduce our revenue guidance. I’d like to go a bit deeper on both.

Emerging Market Challenges

While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. 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.

China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. 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. And market data has shown that the contraction in Greater China’s smartphone market has been particularly sharp.

Despite these challenges, we believe that our business in China has a bright future. The iOS developer community in China is among the most innovative, creative and vibrant in the world. Our products enjoy a strong following among customers, with a very high level of engagement and satisfaction. Our results in China include a new record for Services revenue, and our installed base of devices grew over the last year. We are proud to participate in the Chinese marketplace.


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. In fact, categories outside of iPhone (Services, Mac, iPad, Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year.

While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be. While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.

Many Positive Results in the December Quarter

While it’s disappointing to revise our guidance, our performance in many areas showed remarkable strength in spite of these challenges.

Our installed base of active devices hit a new all-time high—growing by more than 100 million units in 12 months. There are more Apple devices being used than ever before, and it’s a testament to the ongoing loyalty, satisfaction and engagement of our customers.

Also, as I mentioned earlier, revenue outside of our iPhone business grew by almost 19 percent year-over-year, including all-time record revenue from Services, Wearables and Mac. Our non-iPhone businesses have less exposure to emerging markets, and the vast majority of Services revenue is related to the size of the installed base, not current period sales.

Services generated over $10.8 billion in revenue during the quarter, growing to a new quarterly record in every geographic segment, and we are on track to achieve our goal of doubling the size of this business from 2016 to 2020.

Wearables grew by almost 50 percent year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers; launches of MacBook Air and Mac mini powered the Mac to year-over-year revenue growth and the launch of the new iPad Pro drove iPad to year-over-year double-digit revenue growth.

We also expect to set all-time revenue records in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands and Korea. And, while we saw challenges in some emerging markets, others set records, including Mexico, Poland, Malaysia and Vietnam.

Finally, we also expect to report a new all-time record for Apple’s earnings per share.

Looking Ahead

Our profitability and cash flow generation are strong, and we expect to exit the quarter with approximately $130 billion in net cash. As we have stated before, we plan to become net-cash neutral over time.

As we exit a challenging quarter, we are as confident as ever in the fundamental strength of our business. We manage Apple for the long term, and Apple has always used periods of adversity to re-examine our approach, to take advantage of our culture of flexibility, adaptability and creativity, and to emerge better as a result.

Most importantly, we are confident and excited about our pipeline of future products and services. Apple innovates like no other company on earth, and we are not taking our foot off the gas.

We can’t change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results. One such initiative is making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone. This is not only great for the environment, it is great for the customer, as their existing phone acts as a subsidy for their new phone, and it is great for developers, as it can help grow our installed base.

This is one of a number of steps we are taking to respond. We can make these adjustments because Apple’s strength is in our resilience, the talent and creativity of our team, and the deeply held passion for the work we do every day.

Expectations are high for Apple because they should be. We are committed to exceeding those expectations every day.

That has always been the Apple way, and it always will be.


The information presented in this letter is preliminary and our actual results may differ. Apple plans to discuss final results during our first quarter conference call on Tuesday, January 29, 2019 at 2:00 p.m. PST / 5:00 p.m. EST.

MacDailyNews Take: Translation: More pain ahead.

UPDATE: AAPL in after hours trading is down 11.79 (-7.47%) to $146.13 @ 4:57PM EST.

Note: On November 1, 2017, Apple issued the following guidance for its fiscal 2019 first quarter:

• revenue between $89 billion and $93 billion
• gross margin between 38 percent and 38.5 percent
• operating expenses between $8.7 billion and $8.8 billion
• other income/(expense) of $300 million
• tax rate of approximately 16.5 percent before discrete items


  1. Oh oh…. here we go …. hope this doe not bring a whole new avalanch…since stock has been beaten down in anticipation already.

    Going to be a bumpy year.. 🤨😕

  2. Timmy can blame it on emerging markets as much as he want, but the real problem is a product mix that is outdated or underperforming at the current price points (for the Mac), and overpriced products on mobile (iOS).

  3. Sorry to say but I generally do not trust what Tim Cook says (too biased by the self-preservation), and what and how things go through his head is so predictable.
    Just picking a few points.
    1. He says “These last two points have led us to reduce our revenue guidance. I’d like to go a bit deeper on both.” Really!!”?? The 1st point was the supply chain constraints, essentially implying Apple did not have enough to sell. Really? This is what supposedly a supply chain management expert saying, and he was the one cutting off orders to the supply chain according to many reports. We never hard any Apple products being hard to find or get.
    2. Nowhere did he admit that the overpricing was the issue. Well, it was the ultimate issue above all else. No plausible excuse, please.
    3. Issues with the emerging market. Again, red herring from a real issue. He will NEVER admit his own failure. As long as he is reluctant to address his own failure, no hope for any significant turnaround in any foreseeable future for Apple.

    Saturating smartphone market, Apple’s reliance on iPhone biz, overpricing, lack of product innovation, catching up from emerging competitors have all been predicted since at least a year ago. He kept pushing the same strategy, stepped over the edge and fell. Give T/C the sack and let cozy old boy club of executives go too. Replace them with the fresh, innovative, younger, tech-savvy and forward-thinking management.

  4. tl;dr:

    Passing the buck:
    “Supply constraints would gate our sales of certain products”

    Poor economic forecasting:
    “we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.”

    “we did not foresee the magnitude of the economic deceleration”

    Not understanding your users:
    “in some developed markets, iPhone upgrades also were not as strong as we thought they would be.”

    Vaportalk: ‘we fucked up, and we’ll do something different’, except we’ll never hear about it:
    “Apple has always used periods of adversity to re-examine our approach”

  5. Let’s now pause to remember all of those Investor articles that MDN has published in the past two weeks that were trying to encourage individual investors to “Buy! Buy! Buy!”.

      1. That maybe even be more true now…

        Maybe, but only if the fundamentals have changed…

        But these have not.

        (TL;DR: China tariffs, plus now also slowing economies)

        FYI, the current tariff deadline is 1 March 2019.

    1. That’s what I hate about people who are always telling desperate investors to sell all their assets to buy Apple stock. I’ll never forget about Andy Zaky of Bullish Cross (around circa 2013) and his blind faith in Apple which cost naive/greedy investors millions of dollars. Yeah, go load up on Apple stock because absolutely nothing can go wrong. Guaranteed wealth and happiness to last a lifetime for ambitious Apple investors. The slingshot has been pulled back about six feet and is ready for release. What a bunch of crap! Buy, buy, buy becomes bye, bye bye for the suckers.

      I don’t trust anyone to tell me about the future, especially when it comes to Apple. If something can go wrong, it definitely will go wrong when it comes to Apple’s future value. It’s just not very predictable. I listened to all the warning signs and hoped they were wrong, but they all turned out to be true and likely a lot worse. All I can depend upon now is my Apple dividends as they’re not going away any time soon. The rest of the stock is being burned beyond recognition. A trillion-dollar company is turning into a half-trillion-dollar company in just a few short months. Tim Cook must be a magician to make that much company value disappear in the blink of an eye.

      Apple will likely recover somewhat this year but far behind all of the FANG stocks, including Facebook. What a freaking joke for recent, trusting Apple shareholders who figured they had nothing to lose with Apple as low as it was. Hmmm… next stop $130? On par for a doomed company.

    1. If that’s from the “Trump trade war”, then it’s on Apple, since Trump has been in office for 2 years and warned even before he took office that Apple should build products in the USA and not in China. It’s foolish for the US long-term to depend so heavily upon China which is still an entirely authoritarian communist country with only a sprinkling of crony capitalism on top.

      1. Country of manufacture should have nothing to do with sales. Even if iPhones were made in the US, falling sales in China etc would still impact the bottomline.
        The simplest answer is that it is no longer the preserve of the big tech firms to rule the market. It is far easier for a smaller company to steal market share now than ever before.
        Bought my wife a £150 Honor phone, she is very happy with everything.

      2. True, there’s been political rhetoric since the 2016 campaign, but the Market mostly sloughed that off as just trash talk.

        Things didn’t really start to become serious until the first official round was announced on March 22, 2018…

        …and really more to the point, the third round, invoking a 25% rate on “industrially significant” technology on May 29, 2018, where just that really meant wasn’t well defined until September. Officially, Apple is still not on the sanction list, but the arbitrariness of Trump on setting policy could change that in a literal Tweet instant, so the Market is scared (rightfully so) and pricing that in.

  6. Obviously Mr. Cook is a little biased, but there is some truth to what he said. It is true that for the overall quarter that the iPhone XR sales were diminished based on beginning manufacturing constraints (less selling time, less sales) and it is true that the trade war came at a very bad time for Apple when they were most exposed with higher prices. This last point however is somewhere where Apple does need to improve. By raising the prices on their key products (the iPhone), Apple immediately puts themselves at a disadvantage to developing markets. They have not develped the kind of customer loyalty they have in the US in other regions of the world. Thus, alongside the strong US dollar makes prices exorbitant in developing markets, people are less willing to buy Apple products. This could spell trouble down the line, as Apple depends heavily on their ecosystem. Accesories and services have increased year-over-year, but without more people entering the ecosystem the growth will stem out. Hopefully new services that are cross-platform (Apple music and soon the video platform) and lower prices will bring more people into Apple products that should stimulate customer loyalty and sales.

    1. I watched Tim Cook’s full interview of blah, blah, blah, stupid China and stupid trade policies and how Apple can only fix what it can control. Yeah, put that bandage on a gushing jugular vein. Apple’s stock value is bleeding out faster than the water coming out of a full-opened fire hydrant. There is no fix for Apple’s declining share price. WS is running away from Apple as fast as it can.

  7. I can only say this new guidance reminds me of a disastrous RIM/Blackberry moment. At least I know for sure Apple isn’t trying to hide anything. If Tim Cook admits iPhone sales are in the toilet, then that’s where they are. Not very many companies will come out and admit they’re going down in flames before a quarterly report. Tesla tried to hide missed deliveries right up until their quarterly report. Most companies never reveal beforehand that they’re going to flop and usually, investors end up slack-jawed when they find out. Practically all the big Apple investors have now bailed and only Buffett and B-H are getting clubbed to death. I guess I’ll be one of the few Apple shareholders holding on.

    Well, it looks as though 2019 is going to be worse for Apple shareholders than 2018. Apple’s value is going to fall to be around the 4th largest company in market cap. Apple again made all the wrong moves and shareholders are going to feel the pain. Will $140 a share be the bottom or is the stock going to drop to 50% of its value from a few months ago. If only Apple had acquired a cloud business with less foreign involvement, they could have been sitting pretty, like Amazon, Microsoft, and Alphabet. Instead, that damn iPhone became an anchor and dragged Apple and shareholders into an underwater grave.

    The saturated smartphone market doesn’t seem likely to ever recover for the iPhone. Whatever happened to that imminent “iPhone supercycle” some financial geniuses were constantly yapping about? Apple seems to have the worst timing ever with recently announcing changes in transparency.

  8. Hmmm. Issue of innovation and public perception around new markets (icar, home automation, AR/VR) and taking Mac for granted. There has been a lot of incremental innovation on Watch and iPhone), but specking a lot more from Apple as it talks about these items as others come to market with solid products much faster. Apple needs to break out new technologies and products. Financial games and buybacks not enough. Increase dividends substantially to investors otherwise.

  9. Wow. Really disappointed here in Tims half truth. But not surprising based on Apples refusal to ever self critique. Sales are down because you costed the iPhone to high and pushed people limits too much. Despite MDNs and others ridiculous take on ‘premium markets’ – that only had a finite time stamp and Apple missed the signs – slowing sales, wider economic trend. Apple a year ago should have REALLY put its cash to use and introduced the new XR at 499 and the XS at 699.
    Secondly they are too late and likely lost from the home automation game due to the ridiculous strategyy to introduce a 300 dollars speaker to control the home when Amazon are stealing that market at 25 bucks with the dot. You can’t do that and expect to win big. Stupid greedy decisions obsessed with premium. Be premium – but be ready to accept the premium market is shrinking and the risk associated.
    And lastly – disgraceful to try to make this all behind a call to not disclose iPhone numbers a few months ago. They saw it coming then for sure and are to brand obsessed to reduce the prices.
    2019 will be Tims last.

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