What’s the How, Why, and by How Much? For the How and the Why, Cook put the blame squarely on China’s faltering economy, 1600 Pennsylvania Avenue, and a few other lesser items which have gained more attention. How much? Probably around 7-percent. That’s it?
My take of Cook’s revised guidance indicates only two changes of note. The first is the revenue shortfall for the last quarter. The second is the Other category, which increased. Otherwise, revenue, gross margin, and operating expense guidance remained the same. Revenue dropped because China.
Oh, and the battery replacement program (last on Cook’s list of impactful items).
Is that sufficient for a $450-million stock value loss? No, but the stock market has never been accused of being rational. Since then, other tech companies– including Samsung– have pointed the finger at China and announced their earnings would be less than expected; and worse than Apple’s revised guidance.
John Gruber on the battery replacement program:
Tim Cook said Apple replaced 11 million batteries under the $29 replacement program, and they’d have only anticipated about 1-2 million battery replacements normally.
That number is not public information. Gruber claims it came from Apple’s all-hands meeting. Maybe so, maybe not, but 11 million batteries at $29 each is not going to increase Apple’s revenue or profits sufficiently to notice. The battery replacement program began in late Mac 2018 and ended December 2018; about 220 days total.
Do the math. That’s 50,000 battery replacements per day. 220 days times 50,000 equals 11 million batteries. Does anyone believe that Apple could ramp up battery replacements to 50,000 per day early in the program? No. So, what’s going on?
Former Apple VP Jean-Louis Gassée:
I have a hard time believing that the $29 limited time offer had a significant impact on Apple’s numbers. Did Apple replace hundreds of thousands of batteries? I doubt it. At 100 replacements per Apple Store times 500 stores, that’s 50K happy customers and only $50M in missed new iPhone revenues. I’d have to be off by a factor of 10 — half a million iPhone battery upgrades, one thousand repairs per Apple Store — to approach a mere $500M in missed revenue.
According to Gruber, Gassée’s numbers are not correct. Of the 11 million iPhones that might have been upgraded to new iPhone models when iPhone XS, iPhone XS Max, and iPhone XR hit the streets should account for a chunk of Apple’s earnings miss. If only half of the 11 million iPhone owners upgraded to newer iPhones– at an average price of $850– that would account for a revenue increase of about $4.675-billion.
Obviously, not all of the iPhone battery upgrades took place in the last quarter of the year; Apple’s first fiscal quarter, but enough of them that Cook included the item in his revised earnings guidance. The battery replacement program ran for a total of 220 days, 92 in the quarter in question, and 128 days in the quarters leading up to the last quarter. Why didn’t Apple mention anything about the battery replacement program impacting iPhone sales in the previous quarter?
My guess: the effect of the battery replacement program on new iPhone sales wasn’t apparent until after the iPhone XR and XS models were available.
Fair enough. Accounting for the last quarter of the year, a few million iPhones that normally would have been upgraded to newer models were not. But where? In the U.S? In China? Evenly distributed across the globe? Cook said China was to blame for most of the iPhone revenue shortfall. If so, should we believe news stores and rumors that iPhone sales have tanked across the globe?
The math does not add up.