Apple shares were halted this evening ahead of the market’s close. CNBC was first to report on the development. Shortly thereafter, Apple published a “Letter from Tim Cook to Apple investors” in which Cook announced a rare AAPL earnings revision for the first fiscal quarter of 2019.

This is what Apple is now forecasting:

  • Revenue between $89 billion and $93 billion
  • Gross margin between 38 percent and 38.5 percent
  • Operating expenses between $8.7 billion and $8.8 billion
  • Other income/(expense) of $300 million
  • Tax rate of approximately 16.5 percent before discrete items

This compares to Q1 2018 when Apple reported $88.3b in revenue and $20.1b profit from 77.3m iPhones, 13.2m iPads, and 5.1m Macs sold

  • Revenue of approximately $84 billion
  • Gross margin of approximately 38 percent
  • Operating expenses of approximately $8.7 billion
  • Other income/(expense) of approximately $550 million
  • Tax rate of approximately 16.5 percent before discrete items

This is the guidance Apple had previously offered back in November:

In the letter, Tim Cook outlined several reasons for this adjustment. Cook points to factors such as different timing of its iPhone launches, foreign exchange headwinds, struggles ramping new products, and economic weaknesses. Ultimately, Cook says this all resulted in “fewer iPhone upgrades than we had anticipated.”

Further, Cook outlined other factors potentially affecting iPhone performance: consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.

Second, we knew the strong US dollar would create foreign exchange headwinds and forecasted this would reduce our revenue growth by about 200 basis points as compared to the previous year. This also played out broadly in line with our expectations.

Third, we knew we had an unprecedented number of new products to ramp during the quarter and predicted that supply constraints would gate our sales of certain products during Q1. Again, this also played out broadly in line with our expectations. Sales of Apple Watch Series 4 and iPad Pro were constrained much or all of the quarter. AirPods and MacBook Air were also constrained.

Fourth, we expected economic weakness in some emerging markets. This turned out to have a significantly greater impact than we had projected.

In addition, these and other factors resulted in fewer iPhone upgrades than we had anticipated.

Cook also points to China as a pain point for Apple’s first quarter results. Cook says that revenue in China accounts for “over 100 percent of our year-over-year worldwide revenue decline.” Cook says that the economic environment has slowed significantly in China due to trade tensions with the United States:

With all of that having been said, Cook also takes the opportunity to note that there are “many positive results in the December quarter” thus far. Cook says that revenue outside iPhone is up by almost 19 percent due to things like Apple Watch and AirPods. Apple’s wearables business is up almost 50 percent year-over-year, Cook says.

Cook also says Apple expects to set “all-time revenue records in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands, and Korea.”

Ultimately, Cook says that Apple’s “profitability and cash flow generation are strong,” with the company expected to end the quarter with $130 billion in net cash. Further, Cook says that Apple is “confident and excited” about its product pipeline.

Cook also notes that Apple is “undertaking and accelerating” initiatives to improve its performance. One of these efforts, Cook says, is the process of trading in an old phone, financing the purchase of a new phone, and getting help in transferring data between devices:

Companies are supposed to call the exchange where they are listed 10 minutes prior to announcing any news that could significantly affect the stock. That is what Apple seemingly did here, halting trading prior to making this announcement.

Tim Cook addressed Apple’s earnings revision in an interview with CNBC:

EXCLUSIVE: After cutting Q1 expectations, Apple CEO Tim Cook tells CNBC that the shortfall is primarily in Greater China as trade tensions put pressure on the Chinese economy https://t.co/iOf79ebo17 pic.twitter.com/Lm7Wyp1VOX

— CNBC Now (@CNBCnow) January 2, 2019

Trading of AAPL has since resumed. The stock is down nearly 8 percent in after-hours trading, falling to around $145 per share. Shares of Apple suppliers are also down, as reported by Reuters.