Editors' Note: Updated at 7:21 p.m. ET with comments from Tim Cook's CNBC interview.
Apple isn't going to rake in as many billions of dollars as it had expected over the holidays.
The company today (Jan. 2) released a letter to shareholders revising down the revenue guidance Apple had offered for the holiday quarter, from $89-$93 billion down to $84 billion. The reason?
“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,” Apple CEO Tim Cook wrote.
But it’s not just China — people are buying fewer iPhones the world over. Cook said slumping sales could also be attributed to “consumers adapting to a world with fewer carrier subsidies, U.S. dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.” In other words: Why drop a $1,000 on a phone when the current one works just fine if you stick a fresh $29 battery in it? (The cheap battery replacement program ended with 2018.)
Rumors have been swirling for months that the latest iPhones, the XS, XS Max and XR, haven’t been selling as well as previous generations, and it now appears there was some truth to that. Apple hasn’t revised its revenue guidance downward in years. This letter from Cook is a big deal.
But Cook pointed to some bright spots in the company’s upcoming earnings report. The Apple Watch and AirPods led an increase in Apple’s non-iPhone revenue, which is expected to increase 19 percent. Wearables sales jumped 50 percent year-over-year, despite the fact that you still can’t find a deal on AirPods. (Believe me, we’ve looked.) Revenue from services such as Apple Music and Apple Pay also remain strong, to the tune of $10 billion in the holiday quarter.
But Apple has an iPhone problem. If the company can’t convince people to upgrade — or switch from Android — in larger numbers, declining revenue will become an issue that not even wearables and services can make up for.
Cook and Apple seem to recognize that. In an interview with CNBC after releasing his letter to investors, Cook talked up efforts like Apple's trade-in program that looks to incentivize iPhone upgrades with rebates for users who turn in their current device. "The truth is to a consumer the trade-in looks like a subsidy because it lowers the price of the phone that you want," Cook told CNBC.