Apple sees its first sales growth in a year, but China poses challenges ahead
Last week, Apple shared some good news – the company saw its first sales growth in a year, mainly thanks to a strong performance in the App Store and other services. But there's been a hiccup in China.
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The backstory: China is a major market for Apple, being its third-largest source of revenue, right after the US and Europe. Even though China is where Apple makes most of its products, the company is facing some challenges in the region. The latest iPhones, the 15 series, had a tough time selling. According to Jefferies analysts, sales were down 30% in the first week of 2024 compared to the previous year, with an overall 3% sales drop for all of 2023.
Adding to the mix, global politics are making things tricky. The US is limiting China's access to crucial tech, especially cutting-edge chips, and has imposed sanctions on major Chinese tech players like Huawei and SMIC, citing concerns about military applications of advanced chip tech. On the other hand, China reportedly directed its government workers not to use iPhones at work last year. It's part of a bigger plan to rely less on Apple products, underscoring tensions with the US and growing competition from China's own mobile giant, Huawei.
More recently: Huawei introduced new phones last year, including the Mate 60 series. Its Mate 60 Pro, equipped with chips made in China, came out around the same time as the iPhone 15. This launch sent shockwaves through the Chinese chipmaking world because experts saw these phone chips as a big step forward for chips made in China.
And just last month, Apple gave rare discounts on iPhones in China, cutting prices by up to 500 yuan (US$70), around 5% off the regular prices, to boost sales.
The development: Last week, Apple shared some good news – the company saw its first sales growth in a year, mainly thanks to a strong performance in the App Store and other services. But there's been a hiccup in China. Apple's revenue from China dropped 13% compared to last year, marking the worst performance since the 2018 holiday season. Meanwhile, Europe and Japan saw increased sales. Also, the company said that iPhone sales may miss Wall Street's expectations this quarter.
Despite the challenges, Apple remains optimistic. CEO Tim Cook highlighted the ongoing growth of Apple users and loyal customers upgrading their devices. On the financial side, CFO Luca Maestri recognized China's phone market as a tough battleground, describing it as the "most competitive market in the world."
Key comments:
"I remain very optimistic about China over the long term," said Apple CEO Tim Cook.
"We are pleased to announce that our installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments," said Cook.
"The big question is if this is just a blip, or signs of a bigger shift among consumers as rising interest rates and a weaker economic backdrop discourage consumers from making pricey purchases," said Jesse Cohen, a senior analyst at Investing.com.
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