Asian Rivals Posing a Challenge to Apple's iPhone Sales in China

Apple is losing ground in its key Asian market – China, with iPhone sales hit by greater competition and overall revenue seen declining by a significant sum.

The tech giant reported fiscal first-quarter sales and profit that beat analysts’ targets on Thursday, but forecast a drop in iPhone sales and targeted revenue $6 billion below Wall Street expectations because of the hit to its sales in China.

That caused Apple shares to drop 3% in after-hours trade. The results confirmed some analysts’ concerns that the company’s signature product is sliding in China because consumers are buying foldable phones and phones from Huawei, powered by a locally-made chip.

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Chinese market highly competitive: Cook

“China is the most competitive smartphone market in the world, and that hasn’t changed,” Apple CEO Tim Cook said in an interview, adding that iPhone sales there were down “mid-single digits” in the December quarter, after accounting for currency exchange rates.

“We had particularly strong double-digit growth on iPhone in emerging markets outside of China,” Cook said.

IDC analyst Nabila Popal said: “In China, Apple is facing more competitive challenges not only because of Huawei but also because of foldables, which is a very popular and fast-growing segment in China – and as we all know, Apple does not have a foldable device – yet,” .

Apple said sales in China in the December quarter were $20.82 billion, well off analyst estimates of $23.53 billion, according to LSEG data.

Revenue in the current quarter will be at least $5 billion less than a year ago, when the company sold iPhones rapidly to replenish inventories drawn down by Covid-related factory shutdowns, Apple chief financial officer Luca Maestri told analysts on a conference call.

Maestri’s comments implied a revenue forecast of about $90 billion and iPhone sales of around $46 billion for the fiscal second quarter that ends in March. Wall Street expected nearly $96 billion in revenue and iPhone sales of $50 billion. They were $51 billion in the 2023 quarter.

That would make it the company’s worst fiscal second quarter of iPhone sales since widespread Covid lockdowns in March 2020.

“The drag would be China – and it has everything to do with their seasonality, and the elongated replacement cycle,” Ben Bajarin, CEO of research firm Creative Strategies, said.

“Regardless of what happens, (a drop in) year-over-year iPhone sales would be more of a concern than a quarter.”

For its fiscal first quarter to December 30, Apple reported sales of $119.58 billion and profit of $2.18 per share, both above analyst expectations of $117.91 billion and $2.10 per share.

Sales of iPhones hit $69.70 billion in the quarter, growing 6% to beat analyst expectations of $67.82 billion, on the strength of its iPhone 15 lineup, which includes devices capable of capturing three-dimensional video for the Vision Pro headset being released this week. Apple’s total installed base of devices hit 2.2 billion, up from 2 billion a year ago.

Microsoft now the world’s most valuable company

While Apple’s results disappointed, two other tech heavyweights, Amazon.com and Facebook owner Meta Platforms, reported quarterly results on Thursday which led to jumps in their share prices.

Microsoft in January eclipsed Apple as the world’s most valuable company, with investors viewing Apple as lagging in the AI race among tech heavyweights.

Apple has rarely discussed generative AI but on Thursday Cook said on the conference call that it was a “huge opportunity” and there was “a lot of work going on internally” but that he did not plan to discuss it publicly until later this year.

In the rest of Asia beyond China and Japan, Apple’s sales hit $10.16 billion, above analyst estimates. Cook said that iPhone sales hit an all-time high in South Korea, home to longtime rival Samsung Electronics.

The biggest growth area for Apple during its fiscal first quarter was its services business, which includes the Apple TV+ service as well as music, iCloud storage and the App Store, and which rose 11% to $23.12 billion in sales, slightly below analyst expectations.

Apple’s App Store also faces a challenge in Europe, where a new law that takes effect in March will allow developers to skip paying commissions to Apple and place alternative app stores on the iPhone.

Apple’s first-quarter Mac sales were up slightly to $7.78 billion, in line with analyst expectations. Sales of iPads were down 25% to $7.02 billion, a little behind Wall Street’s target.

Apple’s wearables segment, which includes its AirPods and Apple Watch sales, fell to $11.95 billion after company executives had warned of weak demand, just enough to top analysts’ targets

The company’s Vision Pro headset will be included in the segment in subsequent quarters, though analysts do not expect it to bring meaningful revenue for several years.

Several Apple Watch models have been at the centre of a legal dispute with medical device maker Masimo and were briefly pulled from shelves before Apple removed a blood-oxygen monitoring features to comply with legal rulings and keep selling the devices.