Apple’s iPhone Sales Plummets in China—But There’s More to the Story

Apple CEO Tim Cook Sightings In Chengdu
Apple CEO Tim Cook is seen at Apple flagship store in Taikoo Li Chengdu on October 16, 2023 in Chengdu, Sichuan Province of China. VCG/VCG via Getty Images

Apple (AAPL) reported the worst quarter of iPhone sales in China, its largest market outside the U.S., since the Covid-19 pandemic. iPhone sales, which make up for roughly half of Apple’s total revenue, fell 19 percent in the quarter ended March from the same period last year, the tech giant reported yesterday (May 2).

Apple’s stock price is down around 12 percent since the start of the year, largely driven by concerns about Apple’s performance in an uncertain Chinese economy. China’s homegrown smartphone giants, such as Vivo, Huawei, Honor Device and Xiaomi, have put up fierce competition against Apple, pushing the U.S. company’s market share in the country  down from No.1 last year to No.3 in the most recent quarter. This is despite Apple and its Chinese licensed retailers cutting iPhone prices to make up for lost demand in February. In a call with analysts yesterday, Apple CEO Tim Cook called China the “most competitive market in the world.”

While China has faced stifled consumer demand and economic headwinds, the smartphone market boasted a 1.5 percent growth year-over-year in the first quarter, mainly buoyed by Huawei’s 69.7 percent growth streak, as per Counterpoint Research.

Still, Cook projected confidence during the earnings call, arguing that Apple’s high iPhone sales in the comparable quarter last year was inflated by a supply-chain backlog that increased sales by $5 billion. Without that boost, iPhone sales would have been flat year-over-year. “If you look at our results in Q2 [2023 fiscal Q2] for Greater China, we were down 8 percent. That’s an acceleration from the previous quarter in Q1. And the primary driver of the acceleration was the iPhone,” Cook said. He added that the iPhone 15 and iPhone 15 Pro Max were the “two best-selling smartphones in urban China.”

Luca Maestri, Apple’s CFO, expressed similar optimism. “We were happy with our results in China,” he said in the earnings call, noting that “iPhone was the top-selling model in the U.S., urban China, Australia, the U.K., France, Germany and Japan” in the past quarter.

Apple still managed to impress Wall Street analysts, many of whom had expected worse earnings numbers. iPhone revenue totaled to $45.96 billion, higher than the expected $45.76 billion, while revenue from Greater China (inclusive of Taiwan, Hong Kong and Singapore) came to $16.37 billion while investors had predicted $15.87 billion. Apple shares jumped 6 percent in yesterday’s after-hours trading.

The stock rally was also driven in part by Apple’s announcement of a $110 billion stock buyback, the largest in U.S. history, and a $0.01 increase in the company’s quarterly dividend.

Reacting to the expansive buyback and dividend increase, Interactive Brokers’ chief strategist Steve Sosnick commented to Bloomberg that “Apple may be acknowledging that they are becoming a value stock that returns money to shareholders rather than a high powered growth stock that needs its cash for R&D or expansion.”

Cook still sees Apple’s best days ahead of it. “I do see a key opportunity, as I’ve mentioned before with generative A..I with all of our devices or the vast majority of our devices,” he said on the earnings call. “I’m extremely optimistic.”

Key numbers in Apple’s fiscal second-quarter earnings report:

  • Total revenue: $90.75 billion vs. $90.01 billion estimated
  • iPhone revenue: $45.96 billion vs. $46.00 billion estimated
  • Services revenue: $23.9 billion vs. $23.27 billion estimated
  • Net income: $23.64 billion ($1.53 per share) vs. $24.11 billion ($1.50 per share) estimated
  • Gross margin: 46.6 percent vs. 46.6 percent estimated

Apple’s iPhone Sales Plummets in China—But There’s More to the Story

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