After the close on January 2, Apple (AAPL) offered guidance of revenue of $84 billion against the high-end of its own guidance of $93 billion and Wall Street’s consensus of $91.5 billion. Tim Cook gave an interview, where he placed the blame squarely on the slowing Chinese economy, adding that trade tensions are putting additional pressure on China’s economy.
Cook went out of his way to say there has been no Chinese government effort to slow sales. Outside of sporadic chatter on social media or outside stores, the company isn’t being targeted by the Chinese consumer. Apple’s phones are luxury items in China and in America; luxury items across the board have been under pressure.
I think the media is going to miss the real issue here. They are trying to make this a Donald Trump story rather than a Tim Cook story. I live in a household of Apple fanatics, but no one is clamoring for their latest products. There just aren’t enough new bells and whistles for that pilgrimage to the Apple store as there has been for years.
(You know how many times I waited for hours at the Genius Bar wishing they sold drinks.)
Tim Cook is going to have to do better, and I think he needs to shift his focus from solely buying back stock and relying on the iPhone halo. It’s true that non-iPhone product sales increased 19% as several business segments, including the Apps Store, Google Play, Music, and The Cloud, hit records.
However, as other big tech and momentum names are shifting to other revenue streams, it’s just not enough to offset weakness in core offerings. The company has $130 billion. They need to make a couple of giant acquisitions, instead of following the IBM model of looking the other way, thinking big stock buyback programs would save the day.
Taken at face value, Tim Cook’s comments will reverberate at the Federal Reserve, which must take an eraser to its ‘Dot Plot’ and communicate a new message to the world fast. Certainly, this is what President Trump was feeling and thinking yesterday when asked about the stock market and he blamed the recent swoon on a “glitch.”
I don’t disagree. The Fed was the biggest reason the market sold off into the close. He suggested an epiphany at the Fed and a resolution on the China trade battle that could happen soon.
The good news from Apple’s bad news is there will be so much misinformation and poor reporting that it could force the Fed to pause if they were still on the fence.
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