Apple Inc. surprised investors with a decent beat on quarterly revenue from China, countering months of data that showed a quickening decline in iPhone sales.
Chief Executive Officer Tim Cook said iPhone revenue in mainland China grew “on a reported basis,” before adjustments related to Covid supply chain disruptions in 2022. He reiterated Apple’s long-term optimism about a market that’s shrinking but still accounted for 18% of the company’s net sales.
Investors scrutinize the company’s performance in China because of its role as both a huge market and global iPhone production base. Cook kept his remarks on the subject brief, leaving analysts to square those with independent data showing the iPhone is rapidly losing ground in the country’s mobile arena. On the call, he fielded questions on China from at least three analysts seeking clarification.
“What are we missing,” Wells Fargo analyst Aaron Rakers asked, “given the data points that were reported throughout the course of the last quarter?”
Government data of new device registrations showed the iPhone down heavily in the first two months of the year, while analysts at Counterpoint Research saw a 19% decline in March-quarter sales in China. IDC, generally considered the benchmark for tracking the mobile industry, estimated global iPhone shipments slid 10% in the period. The discrepancy may arise from differences in the way analysts and Apple account for revenue.
“We tracked a year-on-year decline in total value generated by iPhones in China in 1Q24,” IDC analyst Will Wong said after Apple’s results. “The average selling price played a key part in explaining why there’s a difference. IDC counted the street prices (i.e. the prices that consumers paid), while Apple is likely using another price level, such as factory price, in its financial report.”
Apple’s shares gained as much as 7.9% in extended trading Thursday, after it announced a $110 billion buyback and a smaller-than-expected decline in global sales. Suppliers in Asia, from Hon Hai Precision Industry Co. to LG Innotek Co., surged on Friday after the report.
Apple doesn’t dive deep into geographical data nor reveal iPhone shipments in general, leaving third-party analysts to parse available information. This year’s iPhone sales in China were more heavily skewed toward newer models, Counterpoint analyst Charles Moon said, nudging up the average selling price per unit. That may help explain how the company’s unit sales could be down while revenue was up.
“Mostly it’s the shift in product mix that’s supporting the revenue number,” Moon said. Counterpoint estimates Apple’s global ASP for the March quarter was $900, a new high for the period. “New models accounted for around 80% share in Q1 2024 versus only two-thirds in Q1 2023, pushing ASPs higher.”
The resurgence of Huawei Technologies Co. has transformed China’s smartphone market since the summer. The Shenzhen-based firm, Apple’s strongest rival in the premium segment, reported a six-fold profit surge during the March quarter and was top of Canalys’ rankings for shipments in the country. Like the other researchers, Canalys found iPhone shipments in China down significantly.
On Thursday’s call, Cook urged analysts to take the longer view and “step back from the 90-day cycle.”
“What I see is a lot of people moving into the middle class” in China, he said. “We clearly have work there to do. I think it has been and is through last quarter, the most competitive market in the world.”
