- Apple lowered its revenue projection for its fiscal first-quarter earnings in a letter to investors Wednesday.
- In an interview with CNBC, CEO Tim Cook laid out his plan for getting revenue back on track by encouraging customers to upgrade their iPhones.
- Cook said he will focus on the factors Apple can control, like marketing its trade-in program and developing a payment plan for iPhones, rather than those he can't, like trade tensions between the U.S. and China.
After warning investors to expect lower revenue for Apple's fiscal first-quarter earnings, CEO Tim Cook said he plans to focus on the factors he can control, rather than wait for trade tensions between the U.S. and China to settle.
"We're not going to sit around waiting for the macro to change," Cook told CNBC's Josh Lipton in an interview Wednesday. "I hope that it does, and I'm actually optimistic, but we're going to focus really deeply on the things that we can control."
In a letter to investors released after hours Wednesday, Apple blamed factors including a slowing economy in China and fewer carrier subsidies for its weakened revenue projection. The company announced it was lowering revenue guidance for Q1 to $84 billion, down from its previous projection of $89 billion to $93 billion. Apple also lowered its gross margin to about 38 percent from between 38 and 38.5 percent. Apple stock was down 10 percent at Thursday's close.
Apple said that fewer people than expected upgraded their iPhones due to the lack of carrier subsidies, cheaper battery replacements and price increases based on the strength of the U.S. dollar. In the letter, Apple told investors that weak iPhone revenue happened "primarily in Greater China," but acknowledged upgrades to new iPhone models in other countries were "not as strong as we thought they would be."
In his CNBC interview, Cook laid out a few of the steps Apple will take to get the company's revenue back on track as trade tensions remain.
Apple has had its trade-in program for a while, but Cook said the company will lean on this program more to encourage customers to upgrade their Apple products more often. Citing benefits to the environment as well, Cook said trade-ins can help offset the sting of a new iPhone as carrier subsidies have waned. An iPhone XR, which retails in the U.S. for $749, can cost $449 for a customer who trades in their iPhone 7 Plus.
"We haven't really marketed it very much," Cook said of the trade-in program. "And the truth is, to a consumer, the trade-in looks like a subsidy because it lowers the price of the phone that you want."
Apple began ramping up its marketing efforts for the iPhone in October as it anticipated lowered sales, Bloomberg reported last month. Since then, the company has increased its advertising of the trade-in program on its website. If you go to Apple's website now, the first thing you see is the iPhone XR advertised at a $300 discount based on the trade-in value of an iPhone 7 Plus.
Another way of soothing the burn of a new iPhone purchase is to let customers pay in installments. Cook said Apple is working on the ability to pay off their new iPhones in monthly charges.
"It begins to look like more of the traditional way of getting it through the carrier," Cook said. "So you wind up getting an incredible new phone that's so much better than what you had for $20, $30 a month or so."
But these offers already exist. Most U.S. carriers let you pay off your iPhone in installments as Cook described. And Apple's own iPhone upgrade program lets you pay a monthly fee and get a new iPhone every year. It's unclear how Apple could expand these programs.
Apple will hold customers' hands through the process of switching to a new iPhone, Cook said.
"People are very worried about transferring their data," he said. By focusing on service in its stores, Apple can ease customers' fears of losing precious photos or conversations when they upgrade to a new phone, Cook said.