Apple's unusual sales warning in January, which slashed its revenue guidance due to weak iPhone sales in China, extended a steady decline in Apple shares since October 2018 on a mix of trade uncertainty and worries of slowing iPhone demand. On Tuesday, Apple will post its full December quarter earnings -- and investors will be tuned in for further signals on Apple's China performance.
"We think softness was protracted by increasing competitive pressures, specifically from Huawei at the high end of the China market, as well as a change in consumer behavior for Apple devices amid the trade war between the U.S. and China," wrote CFRA's Angelo Zino in a note to clients last week. "We expect China to remain the biggest risk to earnings estimates going forward."
U.S. and China officials are also scheduled to meet in Washington D.C. later this week for another round of trade negotiations. However, Apple's results on Tuesday could reverberate across the tech sector and broader markets, said Wilmington Trust's Meghan Shue.
"Apple's obviously very important to the overall market -- it was a huge driver to the equity performance we saw in 2018," Shue explained.
Of course, Apple is far from the only major company with troublesome levels of China exposure.
Nvidia (NVDA - Get Report) , which gets about 56% of its revenues from China, slashed its fourth quarter outlook in a letter to investors on Monday, citing "deteriorating macroeconomic conditions, particularly in China" that impacted consumer demand for Nvidia gaming GPUs. Nvidia shares were trading about 15% lower on the news. Meanwhile, the industrial equipment maker Caterpillar (CAT - Get Report) also posted an earnings miss pinned to tariffs and slowing demand in China.
"I think Caterpillar was surprised at how weak China was," said TheStreet founder Jim Cramer on Monday. "Caterpillar shows you what happens in a world-wide slowdown, and that very few companies are immune. It's quite jarring."
Shue noted that Apple's prior fourth quarter warning means that most of the bad news is likely priced in. Consequently, investors are leaning more heavily on guidance rather than results, she said.
"The problem with that, though, is that markets are relying on this guidance that is opaque at best. We're getting a range of possible scenarios, and we got that a bit from Caterpillar," Shue added.
Analysts for Jim Cramer's Action Alerts Plus portfolio, which owns Apple, agreed that the company's guidance for the March quarter will be most significant.
"Given that the headline numbers are more or less known at this point, we believe guidance and segment margins, which will be broken out for the first time this quarter, are the primary factors deserving attention," said Zev Fima, the portfolio's research analyst.
Apple shares were up 1.04% to $154.68 on Tuesday.
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