Apple’s China sales cool amid slowing economy, domestic competition and anticipation for new iPhone

PUBLISHED : Wednesday, 27 July, 2016, 6:01pm
UPDATED : Thursday, 28 July, 2016, 10:52am

Sales of technology giant Apple in China, its second-largest geographic market, fell for the second consecutive quarter in the three months to June as iPhone demand remained sluggish worldwide.

“We face some challenges in Greater China, as the economic environment has slowed down since the beginning of the year,” Apple chief executive Tim Cook said in a conference call with analysts Tuesday afternoon in the United States.

Apple reported a 33 per cent drop in combined revenue from the mainland, Hong Kong and Taiwan to US$8.85 billion in its fiscal third quarter ended June 25, down from US$13.23 billion in the same period last year.

That represented a wider year on year decline compared with the previous quarter. Apple’s greater China revenue in its fiscal second quarter ended March 26 saw a 26 per cent decrease to US$12.49 billion.

Cook said the challenges for Apple in the China market are reflected in consumer confidence and retail spending, as well as in the yuan’s depreciation by 7 per cent to the US dollar since August last year.

“Hong Kong’s tourism and retail businesses also continue to be significantly impacted by the stronger Hong Kong dollar relative to other Asian currencies,” he said.

Total worldwide Apple revenue in the quarter to June tumbled 15 per cent to US$42.36 billion, from US$49.61 billion a year earlier, as sales of its flagship iPhone slowed down.

Global revenue from the iPhone in its fiscal third quarter was down 23 per cent to US$24.05 billion on total shipments of 40.39 million units, compared with US$31.37 billion in turnover and shipments of 47.53 million units in the same period last year.

Data published last week by Counterpoint Research showed that Apple was mainland China’s fourth top-selling smartphone brand in June, with a 9 per cent share.

“Apple’s market share slipped to 2014 levels as iPhone 6S and SE demand remained soft compared to the iPhone 6 series last year,” Counterpoint research director James Yan said in a report.

“The competitive environment in the world’s leading smartphone market has taken an interesting turn as domestic brands have significantly ramped up their positions.”

Oppo, a subsidiary of Dongguan-based consumer electronics firm BBK Electronics Corp, became the number one smartphone brand on the mainland last month, with a record 23 per cent market share, according to Counterpoint.

Huawei Technologies, the world’s largest telecommunications equipment supplier, was ranked second with 17.4 per cent share. Another BBK subsidiary, ViVo, was third with a 12 per cent share, while high-flying technology start-up Xiaomi had a 6.8 per cent share and tied for fifth with Samsung Electronics.

Bryan Ma, the vice-president for client devices research at IDC, said Apple would remain competitive in China because of its status “as a luxury brand that is still very much desirable”.

Ma pointed out that Apple’s target consumers in China needed “huge motivation to upgrade”, and the similarity between the iPhone 6 and iPhone 6s made them look ahead to the rumoured iPhone 7.

IDC has forecast Apple to face its first down year for the iPhone, with total shipments slipping to 227 million units from 232 million last year.

Cook, however, remained optimistic about demand for the iPhone in greater China. “Our installed base of iPhones in China has grown by 34 per cent over the last year alone.” Cook said. “According to China Mobile, there are more iPhones on their network than any other brand, with iPhone users ranking first in terms of customer loyalty, data usage and average revenue per user. By far, the largest portion of our global channel inventory reduction was in Greater China, so our underlying business there is stronger than our results imply.”