Apple’s revenue miss was bigger than expected, according to Liberum analyst Janardan Menon. Apple issued a revenue warning yesterday, lowering guidance for its fiscal 1st quarter that ended December 29th, 2018. Wall Street, including Goldmann Sachs, was unimpressed, not surprisingly. The same was true of market watchers globally, such as Mr. Menon.
The stock fell after hours and has been punished by traders again today. As of this writing, shares of Apple were trading at US$143.157, down $14.763 (-9.35%), on strong volume.
Worse than Expected
Concerns about the ongoing U.S. China trade war, along with speculation about stalling iPhone sells, had led some investors to expect a difficult quarter for Apple. As TMO Editor Bryan Chaffin noted, “Wall Street was already spooked” by Apple’s decision to stop reporting iPhone unit sales. Even so, Mr. Menon, a technology analyst at brokerage Liberum, told TMO that he thought “the extent of [yesterday’s announcement] was bigger than what people expected.”
High Prices and China
In a letter to investors yesterday, Tim Cook emphasized issues in China as a reason for issuing the warning. In a research note following the announcement, seen by TMO, Goldman Sachs analysts said that “Apple’s guidance cut confirms our negative view on demand in China that we have been flagging since late September.” The firm added that it was “reducing our FY19 revenue estimate by 6% to $253bn and FY19 EPS By ~10% to $11.66.”
Mr. Menon explained that he thinks the “biggest cause” of the revenue miss was “Apples high pricing and market share loses…On top of which there is weakness in the China market on a macroeconomic level which is denting peoples’ confidence.” He also thought that Apple was trying to send a bit of a message to the U.S. government to resolve its trade dispute with China in Mr. Cook’s public comments.
Furthermore, Mr. Menon said that “Apple pricing will clearly stay at the high end of the range but I think they’ve gone a bit too far with their pricing.” The revenue warning could even make Apple somehow lower prices, according to Mr. Menon. “Ultimately I would expect them to bring down their pricing, in their average pricing, in some shape or form,” he said.