As I mentioned in my recent earnings review video, Apple’s fiscal third quarter results were nearly impeccable. But if I had to pick one key area of weakness in the report, I would choose Greater China.

I expected the region to perform much better in the period, since the country is about two months ahead in the COVID-19 cycle compared to the rest of the Western world. Instead, Greater China produced the lowest growth rate among all geographic segments: less than 2% year over year. Granted, the number would have been four percentage points higher, if not for currency headwinds.

What happened in China?

A couple of data points provide a clue as to what may have happened to Apple in China in the fiscal third quarter. First, let’s look at an earnings call quote from CEO Tim Cook:

If you read between the lines, you can quickly draw a couple of conclusions:

  • The iPad, Mac and services were all bullish stories in China – no qualifiers.
  • On the smartphone side, only sales of the pricier iPhone 11 in urban areas deserved an honorable mention.

So, it looks like Apple’s iPhone lineup did well in China among more affluent customers in larger cities. But at the lower end of the spectrum and in rural areas, the iPhone continues to spin its wheels. This piece of news pokes a hole in the more optimistic theses (mine included) that the cheaper iPhone SE launched in April 2020 could have helped to spark demand for the Apple device in the struggling Chinese market.

In addition, new research from Canalys suggests that Huawei had a killer quarter of smartphone sales in China compared to its competitors. Due to challenges faced by the Chinese phone maker elsewhere in the world, it looks like Huawei doubled down on its home country and ate everyone’s lunch in the process – from Apple’s to Samsung’s.

Game over for the iPhone?

Given fiscal third quarter numbers, Apple’s much-anticipated turnaround in China will have to wait longer. Even worse, I question what Apple might need to do to regain its footing in the country. The Cupertino company seems to be losing market share to Huawei because, in my view, it cannot compete very well on price outside the large urban centers.

That said, I wonder if better financial performance in China will need to come from Apple’s other product and service categories. The iPhone, it seems, may have already peaked in the region.

Check out these articles next:

Apple Stock Has Its Best July Since 2006
Apple Stock This Week: Approaching $2 Trillion
Apple: Digging Deeper Into The Earnings Report (Video)

(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)