The worse seems over for the Apple iPhone in China
Apple has had to put up with a number of headwinds that negatively affected sales of the Apple iPhone in China over the last year. One issue was the strength in the U.S. Dollar against the Chinese Yuan. This forced Apple to price its phones at a higher price in the country in order to maintain its profit margins. For example, the dollar's strength forced Apple to price its "more affordable" iPhone XR at a higher price than the Huawei Mate 20 Pro in the country. Apple tried to make up for the dollar's strength by cutting the wholesale prices of its handsets in China back in January.
Another issue that led to sluggish sales of the iPhone in China over the last few months is the U.S.-China trade war. No, the iPhone is not yet on the list of Chinese exports that are taxed once they land in a U.S. port. But the trade war has weakened the Chinese economy and that has hurt the sales performance of Apple's handsets in the country. And we can't forget the rise in nationalism that took place in China following the arrest in Canada of Huawei CFO Meng Wanzhou. The arrest was based on a U.S. warrant and there were immediate repercussions for Apple. Several businesses in China started subsidizing the purchase of smartphones made by Chinese manufacturers while fining those who purchased an iPhone.
During the calendar first quarter of 2019, Apple shipped 30% fewer iPhone units in China compared to the same quarter last year. Deliveries declined from 9.3 million phones in Q1 of 2018 to 6.5 million phones this year. That led to a drop in the company's market share in China during the first quarter from 10.2% to 7.4% year-over-year. But now things could be turning around. According to 24/7 Wall Street (via 9to5 Mac), UBS analyst Tim Arcuri says that iPhone sales in China declined 3% in April compared with the same month last year. That compares with the 61% year-over-year decline in Chinese iPhone shipments racked up in March. And for December, January, February and March, iPhone shipments in China plummeted by an average of 66% on an annual basis. The data comes from the analysis of monthly smartphone sell-through data from the Chinese government.
Apple iPhone shipments in China are piggybacking on overall improvement in the country
Arcuri notes that the iPhone replacement cycle is about 3 years in China, which should help continue Apple's turnaround in the world's largest smartphone market. So far, the analyst hasn't detected any backlash from President Donald Trump's escalation of the trade war. Just last week Trump hiked the tariffs on $250 billion worth of goods and threatened 25% tariffs on another $325 billion in goods from China. Still, Arcuri notes that supply chain checks have yet to show any signs of a slow down based on the tough talk and action coming out of the White House.
The Apple iPhone XR
Besides cutting the wholesale price of the iPhone in China earlier this year, last month it cut the retail price of the iPhone in the country by as much as 6%. But that was because of China's decision to cut the value-added tax (VAT) for manufacturers in China to 13% from 16%.
In addition, the saying that a rising tide lifts all boats certainly applies here. In April, overall shipments of smartphones in China rose 6% after declining in 9 out of the previous 10 months. On a sequential basis, overall smartphone shipments rose 29% from March while iPhone shipments rose 19% from the same month.
Apple has seen all of its businesses struggle in China. For the fiscal second quarter, Apple reported $10.22 billion in Chinese revenue, down from $13.02 billion during the same quarter last year. That is a 22% decline.
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