Apple stock takes a 9% dive due to earnings notice

By Gadjo Cardenas Sevilla

We're quickly seeing the market react to Apple's bombshell announcement of a lower stock earnings guidance. Yesterday, Apple CEO Tim Cook issued a letter to Apple investors revising the company's earnings guidance, a move that hasn't happened since 2002.

Cook implied various macroeconomic factors, including less spending in China, a major market for Apple, for the lower earnings in Q1, usually Apple's strongest quarter. As Cook mentioned in a TV interview, there are various reasons for this lower earnings expectation, many of which were out of Apple's control.

The brewing US trade-war with China and less spending from that country, the staggered iPhone release schedule in 2018 (which saw a month's apart launch for iPhone XS and iPhone XR) slower ramping up of product for iPad Pro. Mac mini and MacBook Air, as well as the $29 battery replacement service that took a bite out of potential earnings.

Watch CNBC's full interview with Apple CEO Tim Cook from CNBC.

(Apple CEO Tim Cook interviewed by CNBC)

Cook cited fewer upgrades to newer iPhone models as the reasons for diminished earnings expectation. Analysts are also crediting the increase in pricing for Apple products in 2018, as a very valid reason why consumers have opted not to buy the latest iPhones, iPads, and Macs in desired volumes. Apple has tried to kickstart iPhone XR sales through various trade-in programs with carriers.

It may be time for Apple to concede the need for more affordable devices along the line of the iPhone SE and entry-level MacBooks at a sub $1000 price-point.

AAPL stock plunged down more than 9.6 percent at the opening of the market, making this the biggest intraday drop in more than three years. Apple's sales for the quarter are estimated at $84 billion in the quarter ended Dec. 29, intial estimates were between $89 billion to $93 billion. Applea earned $88.3 billion in the year ago quarter, so this means the first time Apple will report a holiday earnings slowdown since Cook took the helm of the company 11-years ago.

Source: Bloomberg