Analyst: Three reasons why Apple miscalculated its quarterly revenue

Speaking of mistakes, overestimating a company's quarterly revenue by $5 billion to $9 billion was a pretty big mistake -- so the market was understandably shocked when Apple admitted it. One analyst says Apple's failure to correctly forecast holiday quarter results can be explained by three mistakes, but he also gives three reasons to be optimistic about the company's year ahead.

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It is worth mentioning that Ben Thompson, an analyst who once worked for Apple, was different from other "hindsight experts". He made the following argument before Apple announced a reduction in its revenue forecast for the first quarter of fiscal year 2019. The analyst believes that Apple made this mistake for three reasons:

• - Didn't realize the iPhone's status in China
• - No signs of iPhone XR struggling
• - Blindly believe that iPhone growth is the default state

China Market

Ben Thompson believes that China is a unique market in many ways. In this market, it is extremely important to have the best products, so it is a special challenge for the iPhone S model. Apple's overemphasis on hardware is because software or Apple's ecosystem is far less important in China.

Now that local brands such as Huawei and Xiaomi are launching high-end flagship smartphones, Apple should realize that Chinese consumers may have little motivation to consider the iPhone S model when they can buy high-end phones from another equally popular brand.

Non-flagship iPhone

Secondly, Apple also underestimated the number of consumers who wanted to buy a flagship iPhone or no iPhone at all. Thompson believes that this is why the iPhone XR did not perform as expected. Those who were unwilling to spend money on the iPhone XS series chose to stick with the existing model instead of replacing it with the iPhone XR.

I believe iPhone growth is guaranteed

Third, Apple seems to believe that iPhone sales will continue to grow even in a saturated market. The company fails to consider that much of the iPhone's growth so far has come from expansion into new markets, coupled with a huge boost from Apple finally launching a long-desired larger-screen iPhone in 2014.

There are a number of reasons for the iPhone's growth. The inherent quality and new features of each new iPhone play a role, of course, but an arguably more important factor is distribution, getting the iPhone to more carriers in more countries. In fact, iPhone distribution helps explain why Apple's earnings forecasts have been remarkably accurate over the years.

Reasons for optimism

But Ben Thompson also believes that there are three reasons for him to be optimistic about Apple's future.

• - The good news for Apple is that, while it miscalculated holiday quarter revenue, the company's competitive position is not structurally different from six months ago, when its stock price also began to slide.
• - The next iPhone should sell better in China because it will be brand new. Consumers still prefer Apple's flagship iPhone model, no matter how expensive it is.
• - Currency and battery replacement program headwinds will disappear, and smartphone replacement cycles will always be shorter than PC replacement cycles due to their importance in daily life and the likelihood of damage. Meanwhile, Apple's services business will continue to grow.