Tech

Apple has a China problem and an innovation problem, says Recode's Kara Swisher

Key Points
  • A "contracting" market in China and a slowing innovation cycle were leading factors in Apple's revenue guidance cut, says Recode's Kara Swisher.
  • Swisher says Apple's problems could be a bad sign for big tech.
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Swisher: Where are the exciting new products coming out of Apple?

China may be Apple's biggest problem right now, but a lack of innovation isn't far behind, said Recode's Kara Swisher.

"Obviously, China's at the top of the line," Swisher told CNBC's "Fast Money" in a phone interview on Wednesday, after Apple cut its first-quarter revenue guidance. "One of the successes of Apple was being successful in China, and so they're seeing the downside of a market that's contracting there."

In CEO Tim Cook's letter to shareholders, Apple slashed its revenue estimate to $84 billion, down from the $89 to $93 billion it had previously projected. It also cut its gross margin expectations to about 38 percent from between 38 percent and 38.5 percent.

Cook said the problems were weakness in China and fewer upgrades than expected to new iPhone models in other countries. He told CNBC's Josh Lipton in an interview that U.S.-China trade disputes were likely exacerbating China's economic issues.

Apple shares sank more than 7.5 percent in after-hours trading.

But in addition to economic challenges, Apple also has to contend with issues surrounding the development of new products and services.

"The innovation cycle has slowed down at Apple," Swisher said. "Where is their exciting new product and where are their exciting new entrepreneurs within that company?"

Apple CEO Tim Cook speaks at the Anti-Defamation League's "Never is Now" summit in New York City, December 3, 2018
Brendan McDermid | Reuters

Swisher said that while Cook has done "astonishing" work to make Apple an "economic powerhouse," the company can't shield itself from economic pressures if its team isn't producing "hit" products.

"They're not immune from this unless they have the product everybody has to have," Swisher said. "A lot of [innovation] is coming from China, and when you have the economy tanking there, in some ways, you're all going to be pulled down by this."

Swisher said that it's a glaring problem across Silicon Valley.

"Where is innovation coming from from not just Apple, from Google, from every one of these companies?" she said. "The only one that seems to be consistently innovative recently has been Amazon, which is always coming out with something really interesting and they're still getting hit here in this sell-off."

Apple is expected to report first-quarter earnings in early February. The company has been peppered with criticism from analysts in recent months amid concerns around rumored iPhone production cuts, especially after it chose to stop breaking out sales for individual products.