Apple crumbles as iPhone sales sag in China
Apple Inc posted another record quarterly revenue on Wednesday, but the United States tech giant seems to have lost the momentum in smartphones, which generates nearly 70 percent of its revenue.
A slower economy and the already- high handset penetration rate in China may soon prompt Apple to seek new growth drivers, industry sources said.
The Cupertino, Californiabased company said growth in iPhone sales reached the slowest point since the late Apple co- founder Steve Jobs launched the product line in 2007. Apple shipped 74 million iPhones in the quarter ended in December 2015, an increase of 300,000 units year- on- year.
Tim Cook, chief executive of Apple, also warned that iPhone sales could decline for the first time later this year.
Net income for the quarter was just 2 percent higher than the same period a year ago at $ 18.4 billion, while the year- on- year revenue growth was more or less flat, Apple said.
The company’s growth in China also slowed amid a weakening economy. Its revenue in the country rose 14 percent during the three- month period compared with 20 percent a year earlier.
During an earnings call, Cook admitted the headwinds, but said China will continue to be a key profit driver despite the slowdown. “We aren’t retrenching. We don’t believe in that. We are fortunately strong enough to continue investing, and we think it is in Apple’s long- term interest to do so,” Cook said.
The company is eager to open new bricks- and- mortar stores in smaller Chinese cities to boost sales. Apple plans to have 40 stores in China by the end of this year, compared with 26 stores now, most of which are in top- tier cities such as Beijing and Shanghai.
CK Lu, principal analyst from consulting firm Gartner Inc, said Apple needs to launch a “powerful enough” device to win back buyers as sales of the latest flagship iPhone 6S/ 6S Plus failed to reach the levels of their predecessors.
“The question is if Apple’s next- generation handset will be equipped with features that could dazzle consumers, like the iPhone 6 series did in 2014 and 2015,” Lu said.
After nearly a decade of rapid growth, China’s smartphone sales are now fueled by existing users who are looking to replace their devices instead of first- time buyers. Vendors will need to introduce quality devices at competitive prices to maintain market share.
Kitty Fok, director of consultancy firm International Data Corp China, said Apple does have a stable replacement market but it needs to lure more Android phone users to maintain sales growth.
Fok said because the rise of local vendors such as Huawei Technologies Co Ltd, the US company’s new customer expansion plan could be slower than expected.
Apple has to be prepared for competition from Huawei, Xiaomi Corp and some other local players who are targeting the premium market.
Market shares of Chinese smartphone brands are approaching 80 percent in the country, data from government think tank the China Academy of Telecommunication Research showed.
Frank Meng, chairman of Qualcomm China, the biggest provider of smartphone chipsets, said Chinese vendors are shifting focus to the high- end market for bigger margins.
“Some of the companies are already planning overseas expansions ( in high- end sector), it will be a trend in the future,” Meng said.