Apple (NASDAQ:AAPL) shocked investors last month when it revised its first-quarter forecast, saying that revenue would likely decline by 5% year over year despite already issuing conservative guidance just two months before. This announcement sent the stock reeling and seemingly proved that weakening iPhone sales were the new reality.
When Apple reported its full financial results for the quarter, CEO Tim Cook cited a number of reasons for the shortfall. The biggest impact, according to Cook, was the result of the weakening economy in China.
Now investors have some independent corroboration for Cook's assertions. A new report reveals that Apple wasn't the only one dealing with falling smartphone sales.
Worldwide smartphone sales in decline
It turns out that Apple was dealing with the worst year ever for smartphone sales, according to the Worldwide Quarterly Mobile Phone Tracker report issued by market intelligence company IDC. Worldwide smartphone shipments fell to 375.4 million units in the fourth quarter, a decline of 5% year over year, marking the fifth consecutive quarter of falling sales. IDC said it was the "worst year ever for smartphone shipments," with about 1.4 billion units shipped, a 4% year over year decline in 2018.
When Apple revised its guidance, Cook said the company had failed to anticipate "the magnitude of the economic deceleration," the result of the second worst GDP growth in China in the past 25 years -- a situation that was made even worse by the ongoing trade war with the U.S. On Apple's earnings conference call earlier this week, Cook said, "Most of the shortfall relative to our original guidance and over 100% of our worldwide year-over-year revenue decline was driven by performance in Greater China."
The IDC report confirmed Cook's assertions about sales in China, which saw smartphone sales decline by over 10% in 2018. The country accounts for roughly 30% of the world's smartphone sales, but the report states "high inventory continues to be a challenge across the market as is consumer spending on devices, which has been down overall."
The report estimates that iPhone volumes of 68.4 million in Q4 were down 11.5% year over year, and other big players suffered falling sales as well. Following Apple's forecast revision, tech giant Samsung (NASDAQOTH:SSNLF) -- best known for its popular Galaxy smartphones -- issued its own warning for the fourth quarter. Samsung's Q4 shipments came in at 70.4 million, according to IDC, declining by 5.5% year over year.
Apple's also losing market share
Cook cited a number of other issues that factored into iPhone sales declines. The stronger dollar in relation to other currencies took a toll, reducing revenue by 2%, while also making the iPhone more expensive for international customers. Fewer and fewer carriers are willing to subsidize smartphones, shifting the cost to consumers. Finally, Apple's battery replacement program attracted far more customers than the company anticipated, allowing them to delay upgrading to newer iPhone models.
These very same factors, many of which have an impact on price-sensitive buyers, opened the door for low-cost smartphone providers to steal market share from Apple and Samsung. Huawei, one of the companies' fiercest rivals in China was the biggest beneficiary, with 60.5 million units, up 43.9% year over year according to IDC. A couple of other cut-rate phone providers were also able to increase their market share. OPPO grew shipments in the fourth quarter to 29.2 million, up 6.8% year over year, while Xiaomi (NASDAQOTH:XIACF) (NASDAQOTH:XIACY) increased its shipments to 28.6 million, up 1.4%. All other providers combined fell an aggregate 18.5% to 118.4 million units.
Things probably won't get better anytime soon
Given the slowing economy in China, it makes sense that Chinese consumers would opt for lower-cost smartphone options. The factors cited by Cook that played into falling iPhone sales last quarter will likely persist -- particularly in light of the ongoing trade war -- which is why Apple forecast another quarter of year-over-year declines for the upcoming second quarter.
Tepid iPhone sales in China may be the new normal for Apple, as Chinese consumers increasingly choose cheaper options and worldwide smartphone sales continue to decline.
Danny Vena owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.