Apple Shares Drop Following Letter to Investors Blaming Weak Demand in China

Apple Inc. shares fell nearly 10 percent by market close on Jan. 3, following a press release issued by CEO Tim Cook after market close the previous day. Cook blamed weak demand in China for Apple falling short of its revenue estimate last quarter.

The press release unsettled global financial markets and hurt shares of tech companies that supply Apple.

At the closing bell on Jan. 3, Apple shares had dropped 15.73 points, or 9.96 percent, to $142.19.

Skyworks Solutions Inc. shares were hurt the most down 7.24 points, or 10.65 percent, to $60.72. Broadcom Inc. shares were next in line for a loss of 22.55 points, or 8.90 percent, to $230.96. Cirrus Logic Inc. went down 2.91 points, or 8.49 percent, to $31.35.

Analog Devices shares spiraled down 5.19 points, or 6.04 percent, to $80.73. Micron Technology Inc. bled 1.75 points, or 5.34 percent, to $31.00. And NXP Semiconductors NV dropped 3.06 points, or 4.08 percent, to $71.97.

Tim Cook, CEO of Apple during an Apple launch event at the Brooklyn Academy of Music in N.Y. on Oct. 30, 2018.Stephanie Keith/Getty Images

Falling Short of Expectations

Apple stopped disclosing unit sales reports for its phones in November, which Wall Street immediately took as the tech giant attempting to conceal a downturn in sales.

In his Jan. 2 letter to investors, Cook said Apple “did not foresee the magnitude of the economic deceleration, particularly in greater China.”

Cook said he believes the economic environment in China has been further impacted by rising trade tensions with the United States. He also said in some developed markets, iPhone upgrades fell short of expectations. Apple intends to expand financing plans and streamline trade-ins of older models at its stores.

Apple lowered its revenue forecast to $84 billion for its first quarter, below analysts’ estimate of $88 billion. Apple first forecasted revenue of between $89 billion and $93 billion.

Apple Inc. store in Shenzhen, China on Jan. 3, 2019. Billy H.C. Kwok/Getty Images

Beyond Slowdown of Economic Growth

Apple’s problems in China may not be related to the economy alone. After trade tensions escalated with the United States and Canada arrested Huawei’s CFO Meng Wanzhou, patriotism and negative sentiment towards iPhone increased.

According to Nikkei Asian Review, the Chinese Communist regime is encouraging corporations to support Huawei. The Communist Youth League posts articles on social media encouraging companies to subsidize Huawei products.

A number of media have reported on Chinese technology companies that are forbidding or fining employees from buying iPhones, and offering subsidies for buying Huawei phones. Some restaurants also offer discounts to customers with Huawei phones.

According to the Hindustantimes, Electronics manufacturer Shanghai Youluoke Electronic and Technology is subsidizing up to two Huawei phones per staff member.

Huawei store in Beijing, China on Aug. 7, 2018. Wang Zhao/AFP/Getty Images

In a similar manner, device maker Shenzhen Yidaheng Technology is compensating up to 18 percent of Huawei or ZTE device costs. Likewise, communication service company Fuchun Technology announced it would give up to 500 yuan (US$73) to 200 employees who bought a Huawei’s smartphone before the end of 2018, Hindustantimes reported.

A brewer in China’s Henan province said it will provide employees and customers with free alcohol worth 30 percent of the price of a Huawei device upon presentation of a receipt. And a Shanghai-based business is reported to have said it would fire anyone who bought Apple products.

Apple stock has fallen close to 30 percent since November, but despite broad sell-offs in a volatile stock market, the economy shows signs of strength, as suggested in a national employment report released on Jan. 3. The report estimates private payrolls rose by 271,000 jobs in December, the biggest monthly gain in nearly two years, far surpassing the forecast of 178,000 predicted by economists.