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Apple’s most important products, such as the iPhone, are primarily made in China but so far have avoided tariffs. Photo: Reuters

Apple’s sales performance in China recovers as CEO Tim Cook says Mac production will continue in US

  • California-based company on Tuesday reported revenue of US$53.8 billion for the April-June period, up 1 per cent and beating Wall Street estimates

US technology giant Apple saw an improvement in its China business in the past quarter even though global iPhone sales fell to less than 50 per cent of total revenue for the first time in seven years.

The Cupertino, California-based company on Tuesday reported revenue of US$53.8 billion for the April-June period, up 1 per cent from the same period a year ago and beating Wall Street estimates. CEO Tim Cook shrugged off news that iPhone sales fell to 48.3 per cent of overall revenue, saying it reflected successful diversification away from one product.

In Greater China, which includes mainland China, Hong Kong and Taiwan, Apple said it had US$9.61 billion in sales during the three months, down 4 per cent year-on year but a much narrower decline than the 22 per cent drop off in the previous quarter, signalling that the impact from US-China tech tensions is not worsening.

Cook said non-iPhone revenue grew 17 per cent in China and that Apple grew in every category outside the iPhone in the country. Globally, iPhone sales fell 12 per cent to US$25.99 billion, after dropping 17 per cent in the previous quarter, matching Wall Street forecasts.

“The combined effects of government stimulus, the consumer response to trade and program financing offers, and other sales initiatives and growing engagement with the broader Apple ecosystem had a positive effect,” Cook said during a conference call with analysts. “We were especially pleased with the double-digit increase in services driven by strong growth from the App Store in China,” he said.

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Apple’s latest results come as US and Chinese trade negotiators meet in Shanghai for their first in-person talks since a G20 truce last month. Tensions between the US and China, Apple’s two biggest markets, have cast a cloud over the iPhone-maker due to slowing economic growth in China and uncertainties over its future supply chain.

There was a 6 per cent decline in overall China smartphone shipments in the second quarter. Oppo, Vivo, Xiaomi and Apple reported double-digit declines in the three-month period although Huawei – under pressure outside China from the trade war – led the market with 31 per cent growth in the quarter.

Apple’s China handset shipments fell 14 per cent to 5.7 million units in the April-June quarter from 6.7 million units in the same period last year, while market share shrank to 5.8 per cent from 6.4 per cent.

Apple’s most important products, such as the iPhone, are primarily made in China but so far have avoided tariffs. In response to a question regarding moving some iPhone production outside China, Cook said the vast majority of its products are “kind of made everywhere”.

There have been questions about where Apple’s Mac Pro will be made in future. There have been media reports that Apple hasn’t been able to source some of the parts it needs from its Texas manufacturing plant and had returned to China to make them there instead.

Trade war casts shadow over China business prospects for US firms

In a tweet last Friday, President Donald Trump said his administration will not grant Apple any relief on Mac Pro parts made in China.

“Apple will not be given Tariff wavers (sic), or relief, for Mac Pro parts that are made in China,” President Trump said. “Make them in USA, no Tariffs!”

“In terms of the exclusions, we’ve been making the Mac Pro in the US. We want to continue to do that,” Cook said in the analyst call. “So we’re working and investing currently in capacity to do so, because we want to continue to be here. And so that’s behind the exclusions. So we’re explaining that and hope for a positive outcome.”

“If Trump decides to tax Apple goods made in China it would make Apple devices more expensive, directly impacting sales in Apple’s largest and most important market, the US,” said Neil Shah, research director at Counterpoint Technology.

Shah added that continuing with production in the US, even though it may be a struggle, would be preferable for Apple until current geopolitical tensions cool down, meaning final assembly [of Macs] in Texas will likely continue.