Apple has big drop in iPhone sales in China

Apple reports a significant decline in iPhone sales in mainland China during the first quarter of 2019. As a result, there was a drop also in employee pay and benefits and even layoffs and resignations at assembly plants.

Reasons for the decline in China iPhone sales

Apple Chief Executive Officer (CEO), Tim Cook, said: "While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China." Cook also noted: "We believe the economic environment in China has been further impacted by rising trade tensions with the United States."

During the first quarter of this year, revenue dropped 26.7 percent in greater China, Hong Kong, Macao and Taiwan.

A recent Digital Journal article discussed Huawei's cheaper phones, and how they are impacting the ability of Apple and Samsung to sell premium smartphones in the region: "Samsung at 17 percent and Apple at 16 per cent approximately still are first and second in terms of smart phone market share. However, at 15 percent Huawei is nipping at their heels. Both are also losing share in the fourth quarter compared to the same time period the previous quarter. Apple lost two percentage points and Samsung about one."

Mark Zandi, an economist at Moody's Analytic,s had a different take on events: "Apple is a bellwether. The iPhone is something that everyone knows and buys, and if people aren't buying it, then that's a pretty good sign they're having a hard time. If people aren't buying iPhones, they're probably not buying everything else. It symbolizes how deep China's economic problems are, and we can connect the dots right back to the trade war."

Sales decline has a negative effect on working conditions

The world's largest iPhone assembly plant Foxconn in the city of Zhengzhou capital of Henan province has seen working conditions deteriorate. Workers reported that their salaries were unexpectedly cut at the end of 2018. One anonymous Foxconn worker claimed that peak production lasted only 20 days last year, resulting in a salary cut from about $598 in October last year to just $447 in the next month November.

Formerly published in Digital Journal

Apple stock declines in spite of good holiday sales after price target slash

(January 3) Just over last night, Apple stock suffered a decline of more than nine percent. The downward trend was continuing in trading this morning. The stock price has declined 38 percent since last October.

	1 of 3

Apple's stock price decline

The company halted trading yesterday afternoon in order to provide guidance for future earnings. The iPhone upgrade market has softened and this was among the factors causing a big impact on revenues.

On October 3, Apple stock was priced at $232.07 per share but has dropped $87 a share since that high point. However, the market in general has also suffered a decline. As the Techrunch article went to press the price was still down 8.19 percent at $144.98.

D. Davidson senior analyst Tom Forte said that Apple's announcement was surprising given that Apple traditionally has a strong position: “We knew that iPhone unit sales were weak, but just not how weak." The company said it is now expecting $84 billion in the quarter that ended Saturday, down from its earlier estimate of $89 billion to $93 billion.

China a key factor in Apple's decline

Forte thinks that the China situation is key to the decline as a full 20 percent of Apple sales are in China. The U.S. China trade war with accompanying tariffs on both sides is having a negative effect on Apple's Chinese business. The iPhone is much pricier than competing phones including those of the Chinese giant competitor Huawei but also foreign competitor Samsung. Given the weakening Chinese economy, many Chinese consumers simply cannot afford the high-priced iPhone. Apple is also having patent disputes with Qualcomm in China as reported in this Digital Journal article. Apple had already indicated that iPhone sales were weak in other markets as well such as: India, Russia, Brazil and Turkey.

Other than iPhone rest of Apple portfolio is up

Aside from the iPhone, the remainder of Apple's portfolio is up a huge 19 percent. The company has even been able to set aside a whopping $100 billion for a stock buy-back. Forte notes: “They have the balance sheet. They have the stock buy-back program. They still generate very significant free cash flow, and if the individual investor won’t buy the stock, then the company will buy the stock."

Cannacord Genuity believes that Apple is still a sound company in spite of the announced lower iPhone sales outlook. The company wrote in a report: “We maintain our belief Apple can expand its leading market share of the premium-tier smartphone market and the iPhone installed base (excluding refurbished iPhones) will exceed 700M in 2018. This impressive installed base should drive iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns. We reiterate our BUY rating but decrease our price target to $190 based on our lowered estimates.”

In Forte's view the company might not recover in the near term as long as the U.S.-China trade war is not resolved.

Apple's banner holiday sales

A recent article notes: "Apple today is sharing some good news in the wake of yesterday’s reveal of a significant, market-moving cut to its revenue forecast, attributed to declining iPhone sales in China’s slowing economy. The company says its App Store, at least, was having a good holiday. This year, customers spent $1.22 billion during the 2018 holiday season and broke a new single-day record on New Year’s Day."

On New Year's Day the company reported more than $322 million was spent in New York setting a record as customers bought iPhones, iPads with apps, and used their App Store gift cards.

The sales this year broke those of last year's holiday season which saw sales of $890 million and $300 million on New Year's Day. CEO of Apple Tim Cook noted in his announcement yesterday that the App Store remained one of the bright spots in Apple's services category.

Previously published in Digital Journal