The company is expecting revenue of approximately $84 billion and gross margin of 38 per cent, which is lower than the estimate it revealed in November alongside its fourth-quarter earnings. It originally expected revenue of $89 billion to $93 billion and a gross margin between 38 per cent and 38.5 per cent. It also pulled in $88.3 billion during the first fiscal quarter of 2018 - so, at $84 billion, Apple will see a year-over-year dip.
The blame game
Cook chalked up the revenue decline to a number of variables, such as: the launch timing of its latest round of phones; its inability to keep up with demand for products like Apple Watch Series 4, iPad Pro, MacBook Air, and AirPods; a significant decline in sales in China during the second half of 2018 (due to "rising trade tensions" with the US); "US dollar strength-related price increases"; and other "macroeconomic conditions".
Cook even seemed to blame customers who took advantage of "significantly reduced pricing for iPhone battery replacements". Last year, Apple admitted to throttling old iPhone models with degraded batteries to prevent further issues. After receiving backlash for doing so without explicit permission from iPhone owners, it slashed its $79 battery replacement fee to $29 for a limited time.
Apple saw "fewer iPhone upgrades" than anticipated thanks to the battery replacement program and the other aforementioned factors, which is why the company is now lowering its expected revenue estimates. Clearly, it had a lot of problems to mitigate during the quarter, and it failed to quickly combat them.
What's the plan?
It wasn't all bad news. Cook noted Apple Watch and AirPods were "wildly popular among holiday shoppers" during the quarter, and Apple is "confident and excited" about its pipeline of future products and services. "Apple innovates like no other company on Earth, and we are not taking our foot off the gas," he explained. "We are undertaking and accelerating other initiatives to improve our results."
Apple's plan to improve results, he said, consists of making it simpler to trade in a phone at Apple Stores, finance phone purchases over time, and get help transferring data from a current phone to a new phone, among other things. While that sounds alright in theory, we can't help but think Apple should try a bit harder, perhaps even shift to focus on services more. Imagine Apple buying Netflix or even - stay with us - Disney.
Sure, it's risky. But that could be much more stimulating than a Genius bar rep helping us transfer our phone data.