Apple’s China Dilemma Is Highlighted Again in New Numbers – Barron’s

New Numbers Highlight Apple’s China Dilemma
Photograph by Xavier Wendling

There is no other way to put it: Things aren’t looking good for Apple (ticker: AAPL) in China.

Weak iPhone shipments have undermined Apple’s stock in recent months, and the problem in the Chinese market has been highlighted by the company itself. And now we have additional data to show how rough it has gotten.

Sales of Apple’s flagship product there plunged 20% during the calendar fourth quarter, falling twice as much as the slumping Chinese smartphone market’s sales overall, according to an IDC market research report.

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The steep decline contributed to Apple’s disappointing earnings report last month and a 15% drop in global iPhone sales in the December quarter. It has also spurred some doubts about the long-term strength of the iPhone.

Apple’s decline in the world’s largest mobile market was can be attributed to a slowing economy, the iPhone’s hefty price tag, and lengthening replacement cycles among consumers. Chinese vendor Huawei Technologies gained market share at the expense of Apple, despite the arrest of its finance chief on allegations of bank fraud.

The latest iPhones start at $749 for the iPhone XR, and are priced as high as $1,449 for the iPhone XS with maximum storage.

In early January, Apple CEO Tim Cook warned the deceleration in China would undercut sales, leading to the company’s first revenue outlook cut in almost two decades. The company has focused on its push to ramp up its services business—the company’s fastest-growing revenue segment—as iPhone sales have faltered. Apple didn’t immediately respond to a request for comment on Monday.

Apple reported a 27% drop in overall sales to $13 billion in China during its December quarter.

Huawei, which briefly surpassed Apple to become the world’s No. 2 smartphone brand last year, led all major brands in China. Its unit shipments soared 23% in the December quarter, according to IDC. China’s Oppo and Vivo made modest gains to rank second and third, respectively, followed by Apple.

Xiaomi (Hong Kong: 1810), which finished fifth, had an even worse quarter than Apple. Its shipments plummeted almost 35% because of inventory corrections and an internal restructuring, IDC said.

“The domestic smartphone market environment in 2019 doesn’t look very optimistic,” IDC senior analyst Wang Xi said in the report. And “5G phones will still only comprise a very small portion of the overall market. We’ve a long way to go before they become mainstream,” IDC said.

If Apple and Samsung Electronics (South Korea: 005930) hope to reverse flagging global market demand for smartphones, they have to become more price competitive or ramp up innovation to attract consumers.

Foldable screens, 5G-ready phones, and 3-D cameras could revitalize the market, but superfast phones won’t become widely available until 2020, according to IDC and other market researchers.

Write to Jon Swartz at jonathan.swartz@dowjones.com

Source: https://www.barrons.com/articles/apples-rough-quarter-in-china-hit-iphone-sales-hard-51549920631

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