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Apple cuts sales forecast as China sales weaken; iPhone pricing in focus

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SAN FRANCISCO/BENGALURU/SHANGHAI (Reuters) – Apple Inc on Wednesday took the rare step of cutting its quarterly sales forecast, with Chief Executive Tim Cook blaming slowing iPhone sales in China, whose economy has been dragged down by uncertainty around U.S.-China trade relations.

The news, which comes as a spotlight grows on Beijing’s attempts to revive stalling growth, sent Apple shares tumbling in after-hours trade, hammered Asian suppliers and triggered a broader selloff in global markets.

The revenue drop for the just-ended quarter underscores how an economic slowdown in China has been sharper than many expected, catching companies and leaders in Beijing off balance and forcing some to readjust their plans in the market.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Apple CEO Tim Cook said in a letter to investors.

Apple finds itself in a tricky position in China, a key market for sales and where it manufactures the bulk of the iconic products it sells worldwide, after the high-profile arrest in Canada of the CFO of domestic rival Huawei Technologies Co Ltd [HWT.UL].

Since the arrest last month, at the request of the United States, there have been sporadic reports of Chinese consumers shying away from Apple products. Even before then, local rivals like Huawei had been gaining market share over Apple.

Cook told CNBC that Apple products have not been targeted by the Chinese government, though some consumers may have elected not to buy an iPhone or other Apple devices due to the firm being an American brand.

“The much larger issue is the slowing of the (Chinese) economy, and then the trade tension that has further pressured it,” Cook said.

PRICE TAG

Some analysts, however, questioned the impact of Apple’s own actions, such as its unyielding pursuit of high selling prices for its products.

“Apple sales in China have not been doing well for a few quarters now, part of the reason is that their price points have gone too high – past the $1,000 mark,” said Kiranjeet Kaur, an analyst at market research firm IDC.

“(That’s) almost three times as expensive as phones from other vendors that are filling the mass market.”

China’s smartphone market has dropped sharply this year, with Apple and South Korean rival Samsung Electronics Co Ltd leading the fall, even as some domestic peers have performed more strongly.

(Apple, Samsung lead China smartphone drop: tmsnrt.rs/2PdBGNw)

Samsung said last month it would cease operations at one of its mobile phone manufacturing plants in China, after seeing its share of the Chinese market drop to 1 percent in the first quarter of 2018 versus 15 percent in mid-2013.

FORECAST CUT

Apple on Wednesday lowered its forecast to $84 billion in revenue for its fiscal first quarter ended Dec. 29, below analysts’ estimate of $91.5 billion, according to IBES data from Refinitiv. Apple originally forecast revenue of between $89 billion and $93 billion.

This marked the first time Apple had issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007.

Apple company logos are reflected on the glass window outside an Apple store in Shanghai, China January 3, 2019. REUTERS/Aly Song

Apple shares skidded 7.7 percent in after-hours trade, dragging the company’s market value below $700 billion. In the broader market, the S&P 500 futures fell 1.5 percent. In the U.S. government bond market, a typical safe-haven, the yield on the benchmark 10-year, which moves inversely to the bond’s price, sank to an 11-month low.

PRECURSORS TO A WARNING

Apple’s move was not entirely a surprise. In November, the Cupertino, California-based company said it would quit disclosing unit sales data for iPhones and other hardware items, leading many analysts to worry that a drop in iPhone sales was coming. And after several component makers in November forecast weaker-than-expected sales, some market watchers called the peak for iPhones in several key markets.

In November, Cook cited slowing growth in emerging markets such as Brazil, India and Russia for lower-than-anticipated sales estimates for the company’s fiscal first quarter. But Cook specifically said he “would not put China in that category” of countries with troubled growth.

That all came before the damage to the Chinese economy from trade tensions with the United States and long-simmering structural issues became evident.

Apple is now the highest-profile multinational corporation to warn that the economic slowdown in China could hurt its business. Automakers such as Ford Motor Co, Hyundai Motor Co and Nissan Motor Co Ltd all previously said they planned to cut production in the country.

But Apple has held firm on its premium pricing strategy in China despite the risk of a slower economy.

“The question for investors will be the extent to which Apple’s aggressive pricing has exacerbated this situation and what this means for the company’s longer-term pricing power within its iPhone franchise,” James Cordwell, an analyst at Atlantic Equities, told Reuters.

In the latest fiscal year, ended Sept. 29, unit sales of the iPhone were essentially flat from the prior year, while iPhone revenue expanded 18 percent to $166.7 billion. That growth came entirely from higher prices.

Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel, said Cook’s comments on the impact of the U.S. trade tensions with China “might be a dig at (U.S. President Donald) Trump, but mostly he may be using the trade turmoil as an excuse for some missteps they’ve made over the last year.”

Slideshow (3 Images)

But some investors were heartened by Apple’s plans on using its cash pile.

In his letter, Cook said Apple has $130 billion in net cash and that it intends to continue its efforts to reduce that cash balance to net zero, which the company has so far accomplished through dividend increases and share buybacks.

“We would anticipate the company increasing share buybacks on the weakness to return capital to shareholders at discount prices,” said Trip Miller, managing partner at Apple shareholder Gullane Capital Partners.

Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Additional reporting by Joe White in Detroit, Adam Jourdan in Shanghai and Sijia Jiang in Hong Kong; Editing by Leslie Adler and Christopher Cushing

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Future of Ottawa: Coffee with Francis Bueckert

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Francis Bueckert: When it comes to the current landscape of coffee-roasting companies and independent cafes in Ottawa, I think we are at a really interesting moment in time. There are more local roasters that are doing artisanal small-batch production—with more attention to the quality and origin of the beans.

With larger corporations such as Starbucks closing locations, it has opened a bit of space for local players to grow. We have been lucky to work with many folks in the coffee-roasting community, and we have found that there is a willingness to collaborate among different coffee roasters. For example, when Cloudforest started back in 2014, we were roasting our coffee at Happy Goat and it was the expertise of their head roaster Hans that helped me learn how to roast. Other companies such as Brown Bag Coffee have also lent a hand when we needed extra roasting capacity. There are others, such as Lulo, Mighty Valley Coffee, Bluebarn, The Artery, and Little Victories that are also part of the growing local coffee community. It’s small roasters like these who have shown me what a coffee community can look like, and that we can help to elevate each other, rather than being locked in competition.

If you care to make a prediction… What’s happening to the local café industry in 2021?

We believe that there is hope and that 2021 can be a big pivot year for small roasters and cafes.

This year will not be ideal from a business point of view. However, it could create a shift in people’s attitude toward where they get their coffee. We are holding out hope that people will support the roasters and cafes that are local to help them economically survive what is in all reality a very difficult time.

It all depends on where consumers decide to go this year. People are starting to recognize that supporting large corporations at this moment will be at the cost of the local roasters and cafes. There is the growing realization that a future where there is only Amazon, Walmart, and Starbucks would be pretty bleak. So we have an opportunity this year to support the kind of local businesses that we want to see thrive.

In your wildest dreams, what will the landscape for local coffee roasters and cafés look like in your lifetime?

In my wildest dreams, all of the coffee roasters and cafés would be locally owned and independent. They would all be focused on direct trade and artisanal coffee. Each different coffee roaster and café would know exactly where their coffee came from. Ideally, each company would be a partnership between the farmers who grow the beans and the people here selling them. There would be a focus on how to cooperate and collaborate with the farmers in the countries of origin to share the benefits around. We would all work together and share orders of cups, lids, and other packaging so that we could get better bulk pricing. In this way, we would make our local coffee community so efficient that the large corporate coffee companies wouldn’t even be able to compete.

We would also like to see people use coffee as a way to create social good. For example, we started Cloudforest as a way of helping support farmers in Ecuador who were taking a stand against large mining companies. This remote community stood up to protect their environment, so that they could have clean drinking water and soil for the next generation. They started an organic coffee cooperative to help show that there are other models of development, and we are doing our part year after year to help support their vision. They have a vision of development that does not include mass deforestation and contamination, and organic coffee is a key (among others) to show that another way forward is possible.

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Special events in the Ottawa Valley dominate annual OVTA tourism awards

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The Ottawa Valley Tourist Association hopes that its annual tourism awards will provide a little sunshine during what is a dark time for local tourism operators because of the pandemic.

The Ottawa Valley Tourism Awards are presented annually by the Ottawa Valley Tourist Association (OVTA) to individuals, businesses, and events that recognize the importance of working together for the growth of the local tourism industry, as well as offering exceptional visitor experiences.

“After a year that saw a lot of businesses in the hospitality and tourism industry being challenged like never before, the annual Ottawa Valley Tourism Awards represent a bit of light on the horizon” said Chris Hinsperger, co-owner of the Bonnechere Caves.

The Ottawa Valley Tourist Association’s (OVTA) Awards Committee co-chairpersons, Meghan James and Chris Hinsperger, said they were very pleased with the recent nominations received, especially in the Special Events category. Submissions were received for The Farm to Fork Dinner Series at the Whitewater Inn; Light up the Valley; The Eganville Curling Clubs’ Rock the Rings; The Ontario Festival of Small Halls ; The Bonnechere Caves On-line Underground Concert Series; The Opeongo Nordic Ski Clubs’ Ski Loppet; The Tour de Bonnechere — Ghost de Tour 2020; and The Bonnechere Caves Rock ‘n Roll Parking Lot Picnic.

“During a time when communities were challenged, it is nice to see that people still made an effort to get together and celebrate, albeit under certain conditions. It just shows the creativity and resiliency of our tourism Community here in the valley” said Meghan James, director of sales at the Pembroke Best Western.

There are three Award categories: The Marilyn Alexander Tourism Champion Award, The Business of Distinction and The Special Event of the Year.

Hinsperger, is excited about this year’s awards.

“During this pandemic the hospitality and tourism industry was the first to be hit, was the hardest hit and will be the last of our industries to fully recover. As Valley entrepreneurs we owe it to ourselves, to our businesses and to our communities to be an active part of that recovery. Our livelihood and economic recovery depends on our efforts. And we will get back to welcoming people from all over the world to share a little bit of the place we are privileged to call home. This awards process leaves myself and others fully optimistic about our positive outcomes.”

Award winners will be announced at the Ottawa Valley Tourist Association’s virtual annual general meeting on Monday, May 31.

The OVTA is the destination marketing organization for the Upper Ottawa Valley and proudly represents more than 200 tourism businesses, comprised of attractions and outfitters, accommodation, food, beverage and retail establishments, artists and galleries, municipalities, as well as media and industry suppliers. The OVTA is supported by the County of Renfrew, Renfrew County municipalities and the City of Pembroke.

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Future of Ottawa: Farming with Jeremy Colbeck

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Jeremy Colbeck: Well first, let’s talk about what we mean by farming. Although farms, and farming as an occupation, are in decline across Canada, they are still a major part of our rural landscape. That’s even more true for a strange city like Ottawa which includes a LOT of rural areas and whose urban boundary takes, what, three hours to cross? About 40 per cent of the rural land in Ottawa is farmland. Most of that farming is corn and soybean cash-crop, as well as some dairy and livestock farming. That’s mostly conventional farming (the kind that is profitable but not exactly where you take your kids on a Saturday).

There are also a lot of agri-tourism businesses in Ottawa, which give you that oh-so-good Saturday spot for family donkey-petting and apple-picking. And it’s totally understandable from a business perspective, but sometimes surprising to find out, that even though they grow some of the Christmas trees they sell, they might also be reselling some that come from much larger farms far away. The farmland around Ottawa is also inflated in price because of its proximity to the city, where it is in demand by would-be hobby farmers—folks who want to do some farming on their property in their spare time but make their money (to subsidize their small-scale farming habit) elsewhere. Unfortunately, many of these properties will have large mansions built on them, which will then make them completely unaffordable for the average farmer

There’s also a segment of small-to-medium-sized Ottawa farms that grow “premium” (artisanal, unique, extra-fresh, ecologically- or organically-grown etc…) products that they sell directly to local eaters via farmers’ markets or other direct marketing channels, including on-farm stores and farm stands. That’s where BeetBox fits in.

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