“Development worrying”
Slump in China weighs on Apple’s balance sheet
February 2, 2024, 12:44 a.m
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After four quarters of losses in a row, Apple is returning to profitability. However, the iPhone business in China is weakening. And Apple+ also disappoints as a growth engine. The share has to give up after trading.
The success of the current iPhone generation has stopped the downward trend in Apple sales for the time being. However, the once again disappointing business on the important Chinese market overshadowed the US group’s overall positive business figures. “This development is worrying as it may mark the start of a longer-lasting downward trend,” said analyst Bob O’Donnell from research firm TECHnalysis. Apple shares fell three percent in after-hours US trading on Thursday.
After four quarters of declines in sales, revenues rose by a surprisingly significant two percent to $119.58 billion, the electronics provider announced. Smartphone sales accounted for $69.7 billion of this. The profit of $2.18 per share also exceeded market expectations. The iPhone is selling well, said company boss Tim Cook in an interview with Reuters. “We had particularly strong double-digit growth in emerging markets outside of China. The iPhone is doing well in these markets.”
Problematic market in China
In the People’s Republic, on the other hand, revenues fell “in the mid-single-digit percentage range” if exchange rate effects were taken into account, Cook added. “China is the most competitive smartphone market in the world.” Sales there only reached $20.82 billion instead of the hoped-for $23.53.
In addition to the political tensions between the People’s Republic and the USA, Apple’s powerful products from local competitors are causing problems. The company responded with one of its rare discount campaigns. But there is also a strong wind blowing against Apple in other regions. Samsung is equipping its top smartphone model “Galaxy S24” with functions based on artificial intelligence (AI) and wants to regain the crown as the world’s largest smartphone manufacturer. According to a survey by market researcher International Data Corp, the Korean company had to admit defeat to its US rival in 2023 for the first time in twelve years.
Problem child Apple+
Analyst Ming Chi-Kuo from the financial services provider TF International therefore warned of impending losses for Apple. Orders from suppliers indicated that only around 200 million iPhones would be built in 2024 – 15 percent less than the previous year. Apple CFO Luca Maestri predicted group sales for the current quarter would be below the previous year’s figure. iPhone revenue was expected to remain stable.
Another downer in the balance sheet for the past quarter was the disappointing eleven percent increase in sales in the services division, to which the streaming service Apple+ belongs. “This is likely to worry investors the most, as this business area is the most important growth driver,” said analyst Gil Luria from research house DA Davidson. There is also a risk of further loss of income. In the EU, the group is no longer allowed to force third-party app providers to use Apple’s payment service for billing subscriptions, for which a 30 percent commission is due. In addition, Apple users will in future be able to install apps from sources other than the App Store.