Apple Says Profits Were Flat, Citing Slump in China

Apple mentioned on Tuesday that earnings have been flat and revenues have been down in its most up-to-date quarter, indicating a tough street forward for a corporation that 5 months in the past grew to become the primary American agency to be valued above $1 trillion.

The disappointing monetary efficiency had been anticipated since Jan. 2, when Apple, for the primary time in 16 years, revised its forecast for the quarter due to an financial slowdown in China and diminishing demand for brand new iPhones.

Now, after years of enlargement and record-setting earnings, Apple seems to be coming into a interval of vulnerability. While it has had some success with new merchandise just like the Apple Watch, the corporate has not discovered one other product with the worldwide influence of the iPhone, which was launched greater than a decade in the past. Apple can be uniquely weak to slowing client demand in China, in addition to potential tariffs on Chinese-made merchandise.

Apple’s inventory worth is down a 3rd since its peak final summer season, and now it’s value lower than a number of of its longtime rivals in the tech business.

Apple may face extra monetary strain if the Trump administration locations tariffs on phones made in China — something President Trump has threatened to do. The bulk of Apple’s products are made in Chinese factories.

There are also new concerns about a security flaw in the iPhone. On Monday, Apple customers said an iPhone user could call someone else who had an iPhone and listen in on that person’s conversations through the device’s microphone — even if the recipient did not answer the call. The problem was the result of a bug involving Apple’s FaceTime app. The company promised to have a fix by the end of the week.

Apple’s total revenue for the quarter was $84.3 billion, a 5 percent drop from a year earlier and in line with the revised forecast earlier this month.

Sales of iPhones, following a global trend for smartphones, have been leveling off for several years. Their revenue was $51.98 billion, a 15 percent drop from a year earlier. It’s harder now to offer more specifics on iPhone sales because Apple recently stopped disclosing how many units it sells each quarter.

Luca Maestri, Apple’s chief financial officer, said in an interview that sales had slumped largely because current iPhone owners were waiting longer to upgrade their devices, a trend that has continued into the current quarter. He blamed fewer subsidies from wireless carriers, a strengthening United States dollar and cheaper battery upgrades that consumers have used to extend the lives of their old phones.

Apple has attributed some of its issues in China to a trade war with the United States. And there is concern that some Chinese customers are shying away from Apple products out of national pride, particularly since the authorities in the United States brought charges against the Chinese telecom giant Huawei and its chief financial officer, Meng Wanzhou. Prosecutors cited a decade-long attempt to steal trade secrets, obstruct a criminal investigation and evade economic sanctions on Iran.

“We did not foresee the magnitude of the economic deceleration, particularly in greater China,” Timothy D. Cook, Apple’s chief executive, said this month.

But some data suggest Apple faces more fundamental problems with its business in China. Chinese consumers appear to be opting for less expensive but similar smartphones from Chinese makers, particularly Huawei. Some of Apple’s latest phones top $1,000, far above the typical cost for its Chinese competitors.

Total sales in the region that includes China were down 25 percent in the fourth quarter to $13.17 billion. Outside China, revenues increased slightly.

“We’ve actually seen the economic situation in China continue to deteriorate over the course of the quarter,” Mr. Maestri said. “From mid-November onwards, we’ve seen a deceleration of economic activity in China.”

But he added that Apple had recovered some business by cutting prices in China for the iPhone XR, the lowest-priced new iPhone, to offset the strengthening dollar. Apple declined to disclose the exact size of the price cut.

Mr. Cook said in a call with financial analysts that he believed the iPhone’s high price had hurt sales in emerging markets, and that Apple had dropped prices in a number of them.

Apple made up for tepid iPhone sales in the quarter with 19 percent revenue growth in other areas. The wearables category, which includes the Apple Watch and AirPods headphones, led the way with a 33 percent increase to $7.3 billion.

Apple’s earnings per share were $4.18 in the quarter, beating analysts’ expectations by a penny. Apple’s overall profit was down 0.5 percent to $19.97 billion.

Apple’s struggles appear to be continuing. The company said it expected between $55 billion and $59 billion in revenue in the current quarter, below analysts’ expectations for $59 billion.

Apple’s share price was up more than 5 percent in after-hours trading after its results were announced on Tuesday.

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