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Apple cuts its forecast, blaming a slowdown in China

Evidence continues to mount that China’s economy is slowing faster than expected.

The latest data point comes courtesy of Apple. A significant slowdown in iPhone sales in China forced the company to reduce revenue expectations for its most recent quarter. The company said yesterday that it expected revenue of about $84 billion in the quarter that ended Dec. 29, down from a previous estimate of $89 billion to $93 billion.

It was the first time Apple had lowered its quarterly forecast in 16 years. The NYT’s Jack Nicas and Keith Bradsher write:

“Apple’s surprise announcement added to concerns about the ability of American tech giants to navigate an increasingly uncertain economy and a continuing trade war between the United States and China. China has become Apple’s third-largest market in recent years, driven mostly by iPhone sales.”

Apple’s announcement is the latest warning from corporate America about the impact of the trade war, which may be harder to defend now that the collateral damage includes one of the country’s most recognizable brands. Companies like FedEx and Starbucks are already struggling in China. And other American businesses, especially tech players and Detroit automakers, could suffer as well.

More: The optimistic narrative about Apple’s iPhone business is falling apart, writes Bloomberg Opinion’s Shira Ovide.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin and Stephen Grocer in New York, and Tiffany Hsu and Gregory Schmidt in Paris.

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Markets prepare for a drop as the bears re-emerge

Apple’s announcement added to investors’ concerns about slowing global growth and reawakened the stock market’s bears. The Dow, S&P 500 and Nasdaq futures tumbled more than 1 percent overnight.

Shares of Apple dropped more than 9 percent in after-hours trading, a loss that was reflected in a wider range of companies. Chip makers like Advanced Micro Devices, Nvidia, Skyworks and Qorvo were among the hardest hit, down more than 3 percent. The electronics retailer Best Buy slipped 2 percent, and companies with big business in China such as Boeing and Caterpillar fell 2 percent.

Markets across Asia fell today, as investors shed technology stocks. European markets opened lower as well.

Tesla has a record quarter, but price cuts prompt a sell-off

Apple wasn’t the only company to spook investors yesterday, as Tesla broke records in its fourth quarter but failed to impress the market.

Good numbers, but not good enough: The automaker said it delivered 90,700 vehicles in the period, surpassing its earlier high. Of those, 63,150 were Model 3 sedans, a 13 percent improvement on the prior three-month span, but nonetheless below Wall Street’s expectations. The growth rate for the Model 3, Tesla’s first mass-market offering, fell short compared with the third quarter, when sales more than doubled amid a rush of initial orders.

Demand concerns: Investors were especially perturbed by Tesla’s announcement that it was cutting prices of all models in the U.S. by $2,000 per car. The automaker said it was adjusting to a Jan. 1 reduction of a federal electric-vehicle tax credit for Tesla buyers to $3,750 from $7,500. But what the market saw was a warning that, after a surge of early interest in the Model 3, buyers may be waiting for a more affordable option, writes Bloomberg Opinion’s Liam Denning:

“This suggests that the vast majority of reservation holders are either waiting overseas, where Tesla says deliveries should start next month, or (and this is probably the bigger group) are waiting for cheaper variants such as the long-promised $35,000 version. That latter group poses a potential threat to Tesla’s profit margins in the quarters ahead, especially as Model 3 production remains below previous targets.”

Tesla shares ended trading nearly 7 percent lower.

Censorship in China becomes a growing business

Thousands of low-wage workers in China are trawling the internet in search of forbidden content in a lucrative new industry: censorship factories.

Playing it safe: For Chinese companies, staying on the safe side of government censors is a matter of life and death. Adding to the burden, the authorities demand that companies censor themselves, spurring them to hire thousands of people to police content. “It helps cleanse the online environment,” one worker said.

Little tolerance: China has built the world’s most extensive and sophisticated online censorship system. It grew even stronger under President Xi Jinping, who wants the internet to play a greater role in strengthening the Communist Party’s hold on society. More content is considered sensitive. Punishments are getting more severe.

Rising influence: China’s vision of a government-supervised internet reverberates in other countries. Even in Western Europe and the United States, traditional bastions of free expression, companies are examining their digital limits. Platforms like Facebook and YouTube have said that they would hire thousands more workers to better monitor their content.

China’s ‘new chapter’ in lunar exploration

China may have missed the starting gun in the international space race, but said today that it was the first to land a lunar probe on the far side of the moon.

The Chang’e-4 vehicle, named after the lunar goddess in Chinese mythology, landed in the moon’s oldest and deepest crater and sent back the first close-up images of a region that perpetually faces away from earth.

The China National Space Administration, which hopes to put astronauts in a lunar base by the end of the next decade, called the feat “a new chapter in humanity’s exploration of the moon.” The mission could help advance understanding of the moon’s origins and evolution, and better position China to tap minerals and other resources discovered there.

China landed a rover on the moon in 2013, decades after a Soviet Union spacecraft reached the surface in 1959 and the United States successfully sent its Apollo 11 team in 1969. China’s future plans in space involve sending astronauts to Mars and a probe to Jupiter, according to the WSJ.

The evolution of human welfare

“The world got better last year, and it is going to get even better this year,” Greg Ip writes in the WSJ. Problems like illiteracy, poverty and violent deaths have been dropping worldwide, Ip writes, but the news has received little attention because the decline has been slow and steady.

The gradual progress is coming about through basic rules of growth:

“Invest more in your human and physical capital, open yourself to markets and trade — that’s right, globalization is good — and incomes will rise.”

This has lead to momentous change: Half the world is now middle class.

Revolving door

Halliburton named Jeff Miller its chairman after David Lesar retired on Monday following a 25-year career with the company. Mr. Miller became chief executive of the oil field services giant in 2017, taking over from Mr. Lesar, who had succeeded Dick Cheney in 2000. (Bloomberg)

The speed read

Deals

• China Tobacco International, a subsidiary of the state-owned company that sells 98 percent of all tobacco products in China, has filed for an initial public offering in Hong Kong. (Reuters)

• Apollo Global Management is said to be in talks to buy the industrial parts maker Arconic, which sold combustible material used at the site of the deadly Grenfell Tower fire in Britain in 2017, for about $22 a share. A deal could be reached by the middle of this month. (Bloomberg)

• Qatar Airways made its first major investment in mainland China, buying 5 percent of China Southern Airlines, the country’s largest carrier. (CNN)

• Loosened regulations led to 162 U.S. television stations changing hands last year, up from 104 the prior year. The $8.4 billion in deals stemmed from local stations’ advertising woes and pressure from increasingly powerful broadcast networks. (FT)

Politics and policy

• The partial government shutdown continues after President Trump rejected Democrats’ proposals to restart operations during negotiations and pushed for a border wall during a contentious White House meeting. (NYT)

• Representative Nancy Pelosi, Democrat of California, is poised to become House speaker again, solidifying her status as the highest-ranking and most powerful elected woman in U.S. history. (NYT)

• Complaints of sexual harassment and pay disparity by former staff members for Bernie Sanders’s 2016 presidential campaign have circulated in recent weeks, and the Vermont senator’s perceived failure to address this issue could potentially hinder a second run at the White House. (NYT)

• Senator-elect Mitt Romney, Republican of Utah, declined to endorse President Trump’s re-election, saying that the president “has not risen to the mantle of the office.” His comments touched off a series of counterattacks from Mr. Trump’s allies. (NYT)

• FedEx said it would abandon its plan to begin cargo flights to Cuba, ending more than two years of effort to start the service after relations between the island nation and the U.S. chilled under the Trump administration. (Bloomberg)

Tech

• Roku will allow users to buy pay-TV subscriptions through its streaming service starting late this month, much like Amazon and its Prime Video platform. The feature will include channels such as Showtime, Starz and Epix. (WSJ)

• After steep declines in the price of bitcoin and other digital assets, fund managers focused on cryptocurrencies are asking skittish investors to stay the course. (FT)

• Robot workers replacing humans? Not quite, says the World Bank, which reports that the rise of automation has barely affected global employment so far. (Bloomberg)

• The Chinese e-commerce giant Alibaba and the Belgian government formed a partnership to create a trade hub to help small and medium-size companies in the country sell products abroad. (CNBC)

Best of the rest

• Amid a glut of luxury properties and concerns about the economy, the median price of an apartment in Manhattan fell 5.8 percent at the end of 2018 to $999,000 — the first time in three years it was below $1 million. (FT)

• Temporary administrators appointed by the European Central Bank will oversee the Italian lender Banca Carige after most of its board members resigned following a fraud scandal and disagreement over a turnaround plan. (FT)

• Blake W. Nordstrom, co-president of his family’s namesake retailer who helped lead the company through one of the industry’s most tumultuous periods, died yesterday in Seattle at age 58. (Seattle Times)

• In a “flash crash,” the Australian dollar and other major currencies collapsed against the safe-haven yen in a matter of seconds. (Reuters)

• Investors expect interest rates will end 2019 no higher than where they started. (WSJ)

• Current worldwide debt: nearly $250 trillion, or three times the amount two decades ago. The U.S., China, the eurozone and Japan are the biggest borrowers. (WSJ)

• A data analysis of about 16,000 shale wells operated by 29 of the biggest producers in Texas and North Dakota reveals that many are yielding less than their owners projected to investors. Such projections can create an “illusory picture.” (WSJ)

• Uncertainty over Britain’s exit from the European Union and rising cost pressure have the British economy in a “weak holding pattern,” the British Chambers of Commerce said. (FT)

• An economic and humanitarian crisis in Venezuela, exacerbated by financial sanctions, pushed the country’s oil exports to a 28-year low. (Bloomberg)

• The popularity of meat alternatives has caught the attention of McDonald’s, the leading fast food company, and an increasing number of food and agricultural companies have been investing in alternative protein start-ups. (FT)

• As consumers swap meat for leafy greens, Nestle is preparing for its biggest push yet into the booming vegan market, hoping to turn the trend in plant-based eating into a billion-dollar business. (Bloomberg)

• As global economic growth wanes and investors shift toward the view that further increases of interest rates by the Fed would be a mistake, there is little on the horizon to reverse the slide in Treasury yields. (Bloomberg)

• Morgan Stanley is the world’s top stock underwriter again. Its secret: Dealmakers who helped start-ups tap a spigot of private money. (Bloomberg)

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