Apple: Slowing iPhone sales behind first profits warning since 2002

Apple loses $250bn in value since becoming $1trn company in August

Apple has warned of a slow down in sales with a profits warning to investors indicating that sales in its fiscal 2019 first quarter will be around $7 billion lower than expected.

The unexpected shortfall in sales has been attributed to a combination of a highly valued dollar and an economic slow down in China, exacerbated by the trade war between the US and China.

However, while buyers in China in particular were tending to shun Apple's more highly priced products, it has also been affected by a slow down in sales in the US and Europe, too.

In a letter to investors, Apple CEO Tim Cook also claimed that the different timing of iPhone launches this year will also exaggerate the impact of the tougher trading conditions.

In some developed markets, iPhone upgrades also were not as strong as we thought they would be

"Our top models, iPhone XS and iPhone XS Max, shipped in Q4 2018 - placing the channel fill and early sales in that quarter, whereas last year iPhone X shipped in Q1 2018, placing the channel fill and early sales in the December quarter. We knew this would create a difficult compare for Q1 2019, and this played out broadly in line with our expectations," wrote Cook in his letter to investors.

Cook also admitted that the maturing of the smartphone market had started to affect iPhone sales more generally, particularly in Apple's most profitable markets.

"In some developed markets, iPhone upgrades also were not as strong as we thought they would be," wrote Cook.

For this, he blamed lower carrier subsidies (rather than the radically higher prices of Apple's flagship devices putting buyers off - up by about 85 per cent in recent years*), the strength of the US dollar following a series of interest-rate rises and even iPhone battery replacement programmes enabling users to use their older devices for longer.

China's economy began to slow in the second half of 2018... The economic environment in China has been further impacted by rising trade tensions with the US

Cook also blamed "supply constraints" due to the "unprecedented number of new products to ramp during the quarter", which affected sales of the Apple Watch Series 4, iPad Pro, AirPod wireless earphones and even the new MacBook Air laptop.

While some deceleration in sales in emerging markets had been expected, these have been greater than anticipated, Cook continued, particularly in China.

"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."

Cook suggested that this slowdown won't have been confined to Apple in the Chinese market.

Nevertheless, Cook was also keen to assert that the number of Apple devices in use is higher than ever before, with revenues in Services, Wearables and the Mac line of desktop and laptop computers also growing strongly.

And the company remains highly profitable, with strong positive cash flow.

* from around £550 for an iPhone 5 to £999 for the iPhone XS