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Apple’s Financial Report Consistent With Recent Guidance
February 04, 2019
 
Apple’s quarterly financial report was close to their most recent guidance and they listed the major problems in the calendar 4th quarter:
 

• Weak Macro conditions in emerging markets – This means things in China slowed more quickly than expected, leading to: 
• Greater China revenue down 26.7%
• Lower iPhone upgrades than expected
• Strength in the US dollar 
• Japan (~8% of rev.) carrier phone subsidies lowered; <50% of Japanese iPhone purchases were subsidized in 4Q vs. ~75% in 4Q ’17 
• Battery Replacement program allowed consumers to hold older models longer 

 
Apple faces aggressive competition from the Big 4 in China that offer feature sets that are more advanced than the iPhone.  Moreover, as we have stated previously, the widespread use of WhatsApp has rendered the differentiation of iOS, almost meaningless compared to Android. Apple has been playing catch-up for the last two years in service revenue, but product revenue was still 87% of sales in 4Q and the iPhone has represented 61% of total revenue for the last three years. Apple faces a pricing challenge in China and India, the 2ndlargest phone market and their ‘one (really three) size fits all’ model is unsuitable when competing against brands that offer dozens of models priced from ~$160 to over $1,000.