Apple sees 14% revenue drop in China

Updated 2017-05-04 09:30:40 Global Times

Firm hit by competition from domestic brands

Apple Inc on Tuesday (U.S. time) reported revenue growth for its fiscal second quarter in every market except China, amid rising competition from homegrown smartphone brands in the world's second-largest economy.

During the quarter ended on April 1, 2017, the company's revenue in China fell 14 percent year-on-year to .73 billion, while it posted revenue growth of 11 percent from a year earlier in the Americas, Apple's largest market by revenue.

Total revenue reached .9 billion in the quarter, up 4.6 percent year-on-year, but missing analysts' average estimate of .02 billion.

CEO Tim Cook attributed Apple's revenue fall in the Chinese market partly to currency headwinds, during the quarterly earnings conference call.

He also noted the weak performance in Hong Kong, which "has been hit a bit harder as the tourism market continues to slump."

The iPhone's market share in China fell for the first time last year, down 4 percentage points from 2015 to 9.6 percent in 2016, as cheaper local models chipped away at sales, according to data from U.S. market consultancy International Data Corp.

And the U.S. company is not doing any better this year. A report issued by Singapore-headquartered market research firm Canalys on April 25 revealed that Apple was in fourth position by smartphone shipments in China in the first quarter of 2017.

"Apple's tepid sales in China do not indicate its products are not good - it reflects the strong rise of Chinese smartphone companies, which know better how to woo the more budget-conscious section of the market," Ma Jihua, an IT analyst with Beijing Daojing Consultant Co, told the Global Times Wednesday.

There are signs of consolidation in the Chinese smartphone market. The top three vendors - Huawei, Vivo and Oppo - are pulling away at the head of the market, accounting for over half of the shipments for the first time in the reported quarter, according to the Canalys report.

Ma predicted that Apple could not restore its previous fast sales growth in China, as the high-end smartphone segment that the company dominates is saturated.

Apple tried to make a big splash in the more affordable range of the smartphone market with the launch of the 4-inch iPhone 5C in 2013 and the 4-inch iPhone SE in 2016, but did not achieve the hoped-for results.

In the global battleground, iPhone sales dropped slightly, hitting 50.76 million in the fiscal second quarter, down from 51.19 million a year earlier.

Reversing the trend

Consumers may hold back on purchases amid the growing rumors of a 10th-anniversary special edition of the iPhone to be launched in September, said analysts.

The launch of the new iPhone generation this year would help bolster sales, Wang Yanhui, head of the Shanghai-based Mobile China Alliance, told the Global Times Wednesday.

It has been reported that the 10th-anniversary iPhone lineup will sport features such as a curved AMOLED (active-matrix organic light-emitting diode) display, wireless charging, 3D facial recognition and dual vertical cameras.

However, such features have limited appeal for some consumers, such as Shang Yue, a 31-year-old Beijing resident and owner of an iPhone 6s Plus.

"Based on current reports, the new iPhone lacks disruptive changes. Most of those new features can already be found in much cheaper smartphone models produced by Chinese firms," Shang told the Global Times Wednesday.

For instance, Vivo and Xiaomi both launched smartphones with flexible AMOLED displays last year.

Both Wang and Ma questioned whether the new iPhone could help Apple grab back its market share in China.

China's smartphone market structure is not expected to change until the arrival of the fifth generation mobile wireless network, Ma opined.

"With 5G, the demand for mobile Internet services will be different from the current situation," he said. "Those who can quickly catch the new changes will be able to lead the market. It might be Apple, or Huawei, or some company that is now less famous."

Still, Apple's profit remains high. Its gross margin hit 38.9 percent in the quarter ended on April 1, slightly higher than analysts' average estimate of 38.7 percent.

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