iPhone: China Will Remain A Problem Until 2021

Daniel Martins

This is bad news for Apple. According to state-backed think tank China Academy of Information and Communications Technology, the number of smartphone shipped in China fell off a cliff in July. Overall, units sold dropped by more than one-third over 2019 levels, with “multinational brands” (i.e. Apple, mostly) dropping 30%.

This is not an isolated case of weakness in device sales. After a rebound in April, the Chinese market saw sharp declines of 10% and 16% in May and June, respectively. This is despite the fact that China has been ahead in the COVID-19 cycle, and almost all retail outlets have returned to normal operations.

Even worse news for Apple

If overall softness in the smartphone market was not enough, Apple needs to fight strong competitive headwinds in China. In fiscal third quarter, Greater China was the worst-performing geographic segment due, primarily, to iPhone sales outside large metro areas. More specifically, Huawei faced problems elsewhere in the world and doubled down on its home country, eating Apple’s and Samsung’s lunch in the last three-month period.

The July sales numbers suggest that Apple will, once again, struggle to generate much growth in Greater China in the near term. In fiscal fourth quarter, other products and services will have to do the heavy lifting once again, as was the case of the Mac and iPad in fiscal third quarter.

Stakes are high

The more encouraging news is that Apple is widely expected to launch its 5G-enabled iPhone around October of this year. This could be a crucial game changer for the company in 2021, especially among the more afluent consumers in China.

The same China Academy of Information and Communications Technology think tank reports that 5G phone sales have been growing at a much faster pace than older models. About 61% of total mobile phones shipped in June were 5G-capable, while the figure was only 43% in May. Without a device to compete in this market, Apple has missed out on 5G sales momentum so far.

In fiscal first quarter 2021, the stakes will be high for Apple. Either its 5G phones become an overnight success in Greater China and the Cupertino company capitalizes on pent-up demand, or hopes for a top-line revival in the country could take a massive blow.

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(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)

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