Apple in China: Earnings Preview Edition
After a short hiatus, the Apple Maven is back with another edition of “Apple in China”. But rather than talking about the hot topics of the week in the Asian country, I will focus today’s discussion on Apple’s upcoming third fiscal quarter earnings day.
As always, I will structure my preview of Apple’s third fiscal quarter as follows: (1) a review of what happened in the second fiscal quarter, (2) what could go right and (3) what could go wrong in the most recent period.
What happened last quarter?
In fiscal second quarter 2020, Greater China “fell off the bed”, as we like to say in the finance world. The region saw revenues decline 7.5%, the most among major geographic segments. CEO Tim Cook explained the intra-quarter dynamics in the last earnings call:
What could go right
- I believe Greater China will be a case of “calm after the storm” in fiscal third quarter. Look at the graph above once again, and notice that strength and weakness in sales seem to have been closely correlated with the COVID-19 cycle: more damaging in China and Japan first, less so in Europe and Asia Pacific. I expect the dynamic to flip in the most recent period.
- The iPhone SE is Apple’s most recent attempt at luring price-sensitive consumers. The Chinese smartphone market has been very much dominated by Huawei, vivo and Oppo – vendors that have less expensive devices to offer within their product portfolios. Third fiscal quarter may have been Apple’s opportunity to capture some of the lower-end market.
What could go wrong
- US-China relations have not been the best lately. Stuck in the middle of the debacle is Apple. It is still not clear what the implications of China’s hard stance towards US companies might mean for the Cupertino giant, but making the competitive landscape more favorable for local device makers is a possibility.
- For as long as social and economic unrest continues to exist, Hong Kong will always be a topic of concern for Apple. Even if Greater China recovers in the quarter, Hong Kong could still be a soft spot in Apple’s financial results.
Check out these articles next:
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)