For the first time in 20 years, Apple (NASDAQ: AAPL) reduced earnings guidance, for the first quarter for 2019.
The news is obviously significant, because Apple is one of the top two largest companies on Planet Earth.
Apple lowered revenue estimates to $84 billion from $89 billion. Although the number may not seem significant, when you consider that this company has knocked the ball off the cover the last 20 years, the number is concerning.
The main culprit of the slowdown was China. In an interview on CNBC, Apple CEO Tim Cook said they underestimated the slowdown in emerging markets, naming China specifically. They also noted that fewer people are upgrading to new phones.
Now here’s the other side of the coin. Apple’s installed base of active subscribers hit 100 million. There are more Apple devices being used now than ever before. Revenue outside of the iPhone business grew almost 19%, with services, wearables and Mac at all time highs.
I believe that Apple is in the midst of transitioning from a hardware company to a software company. This could be extremely profitable down the road. The challenge for Apple is to increase the revenue of services so that it actually makes a significant difference. At the moment, it doesn’t.
So, as to the question: “What do I do about Apple if I’m an investor?”
1. If you currently own Apple, don’t panic. Don’t sell the stock. No one ever made money panicking. Sit tight, and let’s see how this plays out over time.
2. If you’re thinking about buying Apple, you have been granted a potentially great opportunity. I’m going to assume the absolute worst case for Apple, though, and suggest that you wait before you start to buy the stock. The reaction to today’s news could be significant, since every mutual fund on the planet owns Apple. If they decide to sell, this could get ugly.
Apple is a phenomenal company. At some point in time, all great companies hit a speed bump. This trade war has certainly become that for Apple.
In the short run…no panicking, because we are long term investors, and in the words of my mentor, David Gardner of The Motley Fool, the long term is the only thing that matters.
Disclaimer/Disclosure Statement: Information in this article is not intended to be a recommendation to invest in any stock. Rather, it is presented for readers’ education and consideration when making their own investment decisions. The author has no position in AAPL.
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