April 14, 2024

(Bloomberg) – Apple Inc. China’s latest quarterly results have stoked investors’ fears that the company is losing its dominance in China, a long-prized market that generates about a fifth of its sales.

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Revenue from the sector declined 13% last quarter, the worst decline since the 2018 holiday season. The decline was so troubling that it eclipsed otherwise strong results, which included Apple’s first overall sales growth in a year.

But signs of trouble in China have been accumulating for months. The country’s government imposed strict restrictions on the use of foreign technology in the workplace. Local rival Huawei Technologies Co. released a new smartphone promoted as a local alternative to the iPhone. And Apple started offering rare discounts on its latest models.

Read more: Is 2024 the year US-China tensions finally leave Apple behind?

Sales of iPads and wearable technology in the country have been particularly weak, making the picture bleak. The company also warned that iPhone growth in the current quarter would not be as strong as Wall Street had estimated, forcing analysts to reconsider their estimates. They went through a similar exercise with Apple’s last earnings call three months ago.

“We believe expectations need to be tempered once again,” Brandon Nispel, an analyst at KeyBanc Capital Markets, said in a note to clients.

China’s importance to Apple goes beyond its status as the company’s third-largest market by revenue. It is the country where Apple produces most of its devices, but is also an attractive growth opportunity because of its 1.4 billion people and expanding middle class.

On a conference call with analysts Thursday, officials said their confidence in China had not been shaken. Chief Executive Officer Tim Cook said that Apple’s installed base is still growing, and current customers are continuing to upgrade their devices. Still, iPhone revenues fell by one percent in the mid-single digits, holding currency rates constant.

“I’m very bullish on China in the long term,” Cook said.

Chief Financial Officer Luca Maestri described the phone sector in China as “the most competitive market in the world”. And Apple isn’t the only player struggling for growth. According to IDC, many top mobile manufacturers have seen shipments decline in the last quarter. In fact, Apple took first place in the market because it did not shrink as much as others, the research firm said.

Read more: iPhone takes top spot in China for the first time despite challenges

But Huawei has bucked the downward trend. The company – blacklisted by the US due to national security concerns – saw a 36% increase in shipments to China. With this he reached fourth place.

The technology company launched the Mate 60 Pro phone last year just before the sale of iPhone 15 started. Huawei devices, which run on China-made chips, are benefiting from a new wave of nationalism in the country.

Countermeasures were taken due to this. Last month, Apple began offering discounts of up to 500 yuan ($70) on the iPhone 15 — a move it doesn’t usually have to take. The markdown was equivalent to about a 5% discount on its top-of-the-line model.

A resurgent Huawei and other manufacturers pose an even bigger threat than before, said Evan Lam, analyst at Counterpoint Research. In some cases, consumers are buying those brands instead of the older iPhone 13 and 14 models, he said.

“This is a competitive issue,” Lamm said.

–With assistance from Charlotte Yang.

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Source: finance.yahoo.com

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