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Apple cuts revenue forecast because of slow iPhone sales in China

With more than 40 stores and hundreds of millions of iPhones sold in the country, Apple is arguably the most successful and highest-profile U.S. company in China. (File Photo)

By Jack Nicas and Keith Bradsher

A significant sales slowdown in China, partly fueled by trade tensions with the United States, has forced Apple to reduce revenue expectations for its most recent quarter.

The company said Wednesday that it expected revenue of about $84 billion in the quarter that ended Saturday, down from a previous estimate of $89 billion to $93 billion. That would be a nearly 5 per cent decline from the same quarter a year ago.

Apple's surprise announcement added to concerns about the ability of US companies, particularly its technology giants, to navigate an increasingly uncertain economy and a continuing trade war between the United States and China.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China," Apple's chief executive, Tim Cook, said in a letter to investors. "We believe the economic environment in China has been further impacted by rising trade tensions with the United States."

With more than 40 stores and hundreds of millions of iPhones sold in the country, Apple is arguably the most successful and highest-profile US company in China. It has become Apple's third-largest market in recent years, mostly because of iPhone sales.

Apple shares dropped more than 7 per cent in after-hours trading Wednesday evening.

Cook said the sales decline in China, Hong Kong and Taiwan would most likely exceed $4.3 billion, which would be roughly equal to the company's overall drop in revenue.

"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," he said.

Growth in iPhone sales has been slowing for years as the global smartphone market has become saturated. Late last year, investors became worried that the trend was about to worsen when Apple said it would stop reporting how many iPhones it had sold.

Apple's announcement, which appeared to be the first time the company had revised its financial guidance since 2002, affirmed those worries. Cook said a slowdown in iPhone sales accounted for all of the revenue shortfall. The company's other revenue sources, including iPad, Mac and software sales, together increased nearly 19 per cent in the quarter.

While China and other emerging markets accounted for most of the sales drop, Cook said iPhone owners in developed markets were also holding on to their devices longer.

Apple has long tried to entice customers to buy new, more expensive iPhones every few years. But those efforts have been stymied. Wireless carriers have cut back on the subsidies they provide to customers, and more people are replacing their batteries instead of their entire device, Cook said.

That wound was in part self-inflicted. Apple cut the cost of a battery replacement to $29 from $79 in response to criticism of older batteries slowing down in its phones. The price of a new iPhone can often top $1,000.